More annual reports from iStar:
2020 ReportPeers and competitors of iStar:
Preferred Apartment Communities Inc.i S t a r A n n u a l R e p o r t 2 0 1 5 uncommon iStar Annual Report 2015 “if you change t h e wa y yo u look at things, the things you look at change” – Wayne Dyer corporate information Headquarters 1777 Ala Moana Boulevard Independent Auditors 1114 Avenue of the Americas New York, NY 10036 Tel: 212.930.9400 Fax: 212.930.9494 Regional Offices 3480 Preston Ridge Road Suite 575 Alpharetta, GA 30005 Tel: 678.297.0100 Fax: 678.297.0101 525 West Monroe Street Suite 1900 Chicago, IL 60661 Tel: 312.577.8549 Fax: 312.612.4162 One Galleria Tower 13727 Noel Road Suite 150 Dallas, TX 75240 Tel: 972.506.3131 Fax: 972.646.6398 180 Glastonbury Boulevard Suite 201 Glastonbury, CT 06033 Tel: 860.815.5900 Fax: 860.815.5901 Suite 142-33 Honolulu, HI 96815 Tel: 212.405.4537 Fax: 808.944.6322 10960 Wilshire Boulevard Suite 1260 Los Angeles, CA 90024 Tel: 310.315.7019 Fax: 310.315.7017 4350 Von Karman Avenue Suite 225 Newport Beach, CA 92660 Tel: 949.567.2400 Fax: 949.567.2411 One Sansome Street 30th Floor San Francisco, CA 94104 Tel: 415.391.4300 Fax: 415.391.6259 Employees As of February 19, 2016, the Company had 188 employees. PricewaterhouseCoopers LLP New York, NY Registrar & Transfer Agent Computershare Trust Company, NA PO Box 43078 Providence, RI 02940-3078 Tel: 800.756.8200 www.computershare.com 75 Certifications with the NYSE. In addition, the Company has filed with the SEC the certifications of the Chief Executive Officer and Chief Financial Officer required under Section 302 and Section 906 of the Sarbanes-Oxley Act of 2002 as exhibits to our most recently filed Annual Report on Form 10-K. For help with questions about the Company, or to receive additional corporate information, please contact: Annual Meeting of Shareholders Jason Fooks May 18, 2016, 9:00 a.m. ET Harvard Club of New York City 35 West 44th Street New York, NY 10036 Investor Relations Vice President, Investor Relations & Marketing 1114 Avenue of the Americas New York, NY 10036 Tel: 212.930.9484 Investor Information Services iStar Inc. is a listed company on the New York Stock Exchange and is traded under the ticker “STAR.” The Company has filed all required Annual Chief Executive Officer Email: investors@istar.com iStar Website: www.istar.com m o c . n o s i d d a . w w w n o s i d d A y b n g i s e D Our goal has always been to find places to invest that offer better-than-market returns – either because they are not obvious, are off the radar or require a special set of skills to execute. By avoiding run-of-the-mill or commoditized sectors, we have often found deep and rich veins of investment opportunity, from highly profitable real estate mezzanine lending in the early 90s and outsized returns from large scale net lease transactions in the late 90s to contrarian real estate plays enabled by an industry-first unsecured financing strategy in the early 2000s. Post-crash, we have found new ways to compete, developed new skills and identified new investment areas to put ourselves in the white space in which we have always worked best. Our progress has been steadily building, and in 2015 we offered a new vision for generating attractive risk-adjusted returns from our platform, which we call iStar 3.0. The common thread running throughout this vision is the need to be Uncommon – Uncommon in our thinking, Uncommon in our approach to customers and partners, Uncommon in our capabilities. Intrinsic to our success is our ability to be different – different in our investment perspective, different in our financing strategies, different in our market positioning. Simply put, we don’t ever want to be “one of many.” We think the best risk-adjusted returns lie outside the scrum of volume-focused investors and commoditized markets. What we try to do is not easy – and not always easy to explain to the markets. But the rewards are real and tangible, and we think worth the effort for long-term value creation and for our shareholders. We have an unusual platform, benefited by a wide set of hard- won skills, hands-on experience in many markets, and an uncommon ability to find ways to create value. We are looking forward to the uncommon returns that should result. 1 iStar 3.0 22 This year we changed our name from iStar Financial to iStar. This change reflects our growing capabilities and our expanded investment activities. Building upon our historical strengths in finance and net lease, we have added key real estate disciplines from entitlement, design and ground-up development to repositioning, marketing and full-scale asset management. Such breadth and depth allow us to see investment opportunities from a uniquely iStar perspective and provide balance and valuable diversification to help manage volatility. Our new name and logo represent a new phase in our history – a recommitment to our customers, investors and partners to deliver ideas beyond the expected and an uncommon level of excellence. The opening in the circle represents our mission – to seek out investment gaps in the market. Our expanded circular logo symbolizes our integrated platform and uncommon perspective. 33 Changing our name to just iStar signifies our broad and growing capabilities. The white space in our logo is a metaphor for the untapped opportunities we see around us. uncommon capital 4 iStar is not commodity capital. We’re a value-add provider of opportunity, creativity and flexibility. We execute over the long term and seek to deliver uncommon results. “Uncommon” is a challenge to ourselves. It demands we ask tough questions and leave no stone unturned. It demands creative ideas executed with precision and grounded in insightful analysis. It means we are less interested in what has already been done, because we are more focused on what can be. “Uncommon” is a challenge to set the bar high. We differentiate ourselves through our creativity, diligence and integrity. We are not for everyone. But those who have worked with us over the past 20 years know that we stand apart. 5 6 uncommon thinking Combine decades of experience with a constant desire to learn, and you have an organization that is deeply interested in understanding why the real estate world works the way it does. We question and probe, test and pivot, always looking for the solution that represents the optimal outcome and upholds the high standard of fairness we believe engenders long-term relationships and sustainable success. Being true to our word and doing right by our lenders, our borrowers, our partners and the communities in which we work enable us to do our best work. 7 uncommon platform 8 We have built a fully-integrated platform to take advantage of our unusual range of in-house resources. We are able to finance, fix, reposition, market, manage, reimagine and develop properties to make effective use of our capital and experience. We don’t limit ourselves to particular capital positions, asset types or geographies. From single properties to master-planned communities, from structured finance to direct investment, our mission is to create value. 9 10 uncommon adaptability Our flexibility and responsiveness put the advantage of doing business with us in stark relief. We are built on a foundation of insight that we have honed over two decades, informed by lessons learned managing through many business cycles. Our adaptive nature and seasoned management team have made us stronger, more resilient and more sustainable. We are thinkers, challengers, creators and doers. Markets change, opportunities move, but our creative culture is built to adapt and pursue uncommon returns wherever they may be available. 11 12 results Overview PortfolioOverview SelectedFinancialData Management’s Discussion and Analysis of Financial Condition and Results of Operations Quantitative and Qualitative Disclosures about Market Risk Management’s Report on Internal Control over Financial Reporting Report of Independent Registered Public Accounting Firm Consolidated Balance Sheets Consolidated Statements of Operations Consolidated Statements of Comprehensive Income (Loss) Consolidated Statements of Changes in Equity Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements Performance Graph Dividends Directors and Officers Corporate Information 14 15 16 18 30 30 3 1 32 33 34 35 36 37 73 73 74 75 13 OVERVIEW iStar Inc. (the “Company”) finances, invests in and develops real estate and real estate related projects as part of its fully- integrated invest- ment platform. The Company has invested more than $35 billion over the past two decades and is structured as a real estate investment trust (“REIT”) with a diversified portfolio focused on larger assets located in major metro- politan markets. The Company’s primary business segments are real estate finance, net lease, operating properties and land and development. The real estate finance portfolio is comprised of senior and mezza- nine real estate loans that may be either fixed-rate or variable-rate and are structured to meet the specific financing needs of borrowers. The Company’s portfolio also includes preferred equity investments and senior and subordi- nated loans to business entities, particularly entities engaged in real estate or real estate related businesses, and may be either secured or unsecured. The Company’s loan portfolio includes whole loans and loan participations. The net lease portfolio is primarily comprised of properties owned by the Company and leased to single creditworthy tenants where the properties are subject to long-term leases. Most of the leases provide for expenses at the facilities to be paid by the tenants on a triple net lease basis. The properties in this portfolio are diversified by property type and geo- graphic location. In addition to net lease properties owned by the Company, the Company partnered with a sovereign wealth fund in 2014 to form a venture to acquire and develop net lease assets (the “Net Lease Venture”). The land and development portfolio is primarily comprised of land entitled for master planned communities as well as waterfront and urban infill land parcels located throughout the U.S. Master planned communi- ties represent large-scale residential projects that the Company will entitle, plan and/or develop and may sell through retail channels to home builders or in bulk. Waterfront parcels are generally entitled for residential projects and urban infill parcels are generally entitled for mixed-use projects. The Company may develop these properties itself, or in partnership with com- mercial real estate developers, or may sell the properties. The operating properties portfolio is comprised of commercial and residential properties which represent a diverse pool of assets across a broad range of geographies and property types. The Company generally seeks to reposition or redevelop these assets with the objective of maximizing their value through the infusion of capital and/or intensive asset manage- ment efforts. The commercial properties within this portfolio include office, retail, hotel and other property types. The residential properties within this portfolio are generally luxury condominium projects located in major U.S. cities where the Company’s strategy is to sell individual condominium units through retail distribution channels. 14 PORTFOLIO OVERVIEW As of December 31, 2015, based on current gross carrying values, the Company’s total investment portfolio has the following characteristics ($ in millions)(1): Asset Type Real Estate Finance $1,638 32% Strategic Investments $74 1% Operating Properties $709 14% Property Type Property/Collateral Types Land Office / Industrial Mixed Use / Mixed Collateral Hotel Entertainment / Leisure Condominium Retail Other Property Types Strategic Investments Total Geography Net Lease $1,559 31% Land and Development $1,108 22% Real Estate Finance $ 44,631 153,947 546,363 348,824 – 249,832 78,129 216,259 – Net Lease – $ 854,085 – 136,080 501,995 – 57,348 9,483 – Operating Properties – $ Land and Development $ 1,108,414 135,738 256,630 55,137 – 137,278 124,261 – – – – – – – – – – $ 1,637,985 $ 1,558,991 $ 709,044 $ 1,108,414 Geographic Region Real Estate Finance $ 927,556 78,356 135,721 226,878 52,838 155,284 61,352 – Net Lease $ 383,197 410,028 234,878 139,572 169,340 79,998 141,978 – Operating Properties $ 485 57,943 276,859 141,564 143,278 57,961 30,954 – Land and Development $ 228,623 356,328 152,199 204,001 149,546 6,315 11,402 – $ 1,637,985 $ 1,558,991 $ 709,044 $ 1,108,414 Northeast West Southeast Mid- Atlantic Southwest Central Various(2) Strategic Investments(2) Total Explanatory Notes: (1) Based on the carrying value of our total investment portfolio gross of accumulated depreciation and general loan loss reserves. (2) Combined, strategic investments and the various category include $18.6 million of international assets. 15 Total $ 1,153,045 1,143,770 802,993 540,041 501,995 387,110 259,738 225,742 73,533 $ 5,087,967 Total $ 1,539,861 902,655 799,657 712,015 515,002 299,558 245,686 73,533 $ 5,087,967 % of Total 22.7% 22.5% 15.8% 10.6% 9.9% 7.6% 5.1% 4.4% 1.4% 100.0% % of Total 30.3% 17.7% 15.7% 14.0% 10.1% 5.9% 4.8% 1.5% 100.0% SELECTED FINANCIAL DATA The following table sets forth selected financial data on a consolidated historical basis for the Company. This information should be read in con- junction with the discussions set forth in “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” For the Years Ended December 31, (In thousands, except per share data and ratios) Operating Data: Operating lease income Interest income Other income Land development revenue Total revenue Interest expense Real estate expense Land development cost of sales Depreciation and amortization General and administrative Provision for (recovery of) loan losses Impairment of assets Other expense Total costs and expenses Income (loss) before earnings from equity method investments and other items Gain (loss) on early extinguishment of debt, net Earnings from equity method investments Loss on transfer of interest to unconsolidated subsidiary Income (loss) from continuing operations before income taxes Income tax (expense) benefit Income (loss) from continuing operations Income (loss) from discontinued operations Gain from discontinued operations Income from sales of real estate Net income (loss) Net (income) loss attributable to noncontrolling interests Net income (loss) attributable to iStar Inc. Preferred dividends Net (income) loss allocable to HPU holders and Participating Security holders(1) Net income (loss) allocable to common shareholders Per common share data(2): Income (loss) attributable to iStar Inc. from continuing operations: Basic and diluted Net income (loss) attributable to iStar Inc.: Basic and diluted Dividends declared per common share 2015 2014 2013 2012 2011 $ 229,720 134,687 49,931 100,216 514,554 224,639 146,750 67,382 65,247 81,277 36,567 10,524 6,374 638,760 (124,206) (281) 32,153 – (92,334) (7,639) (99,973) – – 93,816 (6,157) 3,722 (2,435) (51,320) $ 243,100 122,704 81,033 15,191 462,028 224,483 163,389 12,840 73,571 88,287 (1,714) 34,634 6,340 601,830 (139,802) (25,369) 94,905 – (70,266) (3,912) (74,178) – – 89,943 15,765 704 16,469 (51,320) $ 234,567 108,015 48,208 $ 216,291 133,410 47,838 – 390,790 266,225 157,441 – 71,266 92,114 5,489 12,589 8,050 613,174 (222,384) (33,190) 41,520 (7,373) (221,427) 659 (220,768) 644 22,233 86,658 (111,233) (718) (111,951) (49,020) – 397,539 355,097 151,458 – 68,770 80,856 81,740 13,778 17,266 768,965 (371,426) (37,816) 103,009 – (306,233) (8,445) (314,678) (17,481) 27,257 63,472 (241,430) 1,500 (239,930) (42,320) $ 195,872 226,871 39,722 – 462,465 342,186 138,714 – 58,091 105,039 46,412 13,239 11,070 714,751 (252,286) 101,466 95,091 – (55,729) 4,719 (51,010) (5,514) 25,110 5,721 (25,693) 3,629 (22,064) (42,320) 1,080 $ (52,675) 1,129 $ (33,722) 5,202 $ (155,769) 9,253 $ (272,997) 1,997 $ (62,387) $ (0.62) $ (0.40) $ (2.09) $ (3.37) $ (0.91) $ $ (0.62) – $ $ (0.40) – $ $ (1.83) – $ $ (3.26) – $ $ (0.70) – 16 For the Years Ended December 31, 2015 2014 2013 2012 2011 (In thousands, except per share data and ratios) Supplemental Data: Adjusted income allocable to common shareholders(3) Ratio of earnings to fixed charges(4) Ratio of earnings to fixed charges and preferred dividends(4) Weighted average common shares outstanding – basic and diluted Cash flows (used in) from: Operating activities Investing activities Financing activities $ 83,977 $ 109,377 $ (21,677) $ (53,847) $ – – – – – – – – 84,987 85,031 84,990 83,742 (3,316) – – 88,688 $ (59,947) 184,028 114,481 $ (10,342) 159,793 (190,958) $ (180,465) 893,447 (455,758) $ (191,932) 1,267,047 (1,175,597) $ (28,577) 1,461,257 (1,580,719) As of December 31, 2015 2014 2013 2012 2011 (In thousands) Balance Sheet Data: Total real estate(5) Land and development(5) Loans receivable and other lending investments, net Total assets Debt obligations, net Total equity Explanatory Notes: $ 1,731,257 1,001,963 1,601,985 5,622,892 4,143,683 1,101,330 $ 1,983,734 978,962 1,377,843 5,463,133 4,022,684 1,248,348 $ 2,224,664 932,034 1,370,109 5,642,011 4,158,125 1,301,465 $ 2,409,864 965,100 1,829,985 6,159,999 4,691,494 1,313,154 $ 2,597,735 973,205 2,860,762 7,523,083 5,837,540 1,573,604 (1) All of the Company’s outstanding HPUs were repurchased and retired on August 13, 2015 (see Note 13 of the Notes to Consolidated Financial Statements). Participating Security hold- ers are non- employee directors who hold unvested common stock equivalents and restricted stock awards granted under the Company’s Long Term Incentive Plans that are eligible to participate in dividends (see Notes 14 and 15 of the Notes to Consolidated Financial Statements). (2) See Note 15 of the Notes to Consolidated Financial Statements. (3) Adjusted Income should be examined in conjunction with net income (loss) as shown in our consolidated statements of operations. Adjusted Income should not be considered as an alternative to net income (loss) (determined in accordance with GAAP), as an indicator of our performance, or to cash flows from operating activities (determined in accordance with GAAP) as a measure of our liquidity, nor is Adjusted Income indicative of funds available to fund our cash needs or available for distribution to shareholders. Rather, Adjusted Income is an additional measure for us to use to analyze how our business is performing. It should be noted that our manner of calculating Adjusted Income may differ from the calculations of similarly- titled measures by other companies. See computation of Adjusted Income on page 23. (4) This ratio of earnings to fixed charges is calculated in accordance with SEC Regulation S-K Item 503. For the years ended December 31, 2015, 2014, 2013, 2012 and 2011, earnings were not sufficient to cover fixed charges by $99,825, $89,948, $240,912, $305,450 and $65,842, respectively, and earnings were not sufficient to cover fixed charges and preferred dividends by $151,145, $141,268, $289,932, $347,770 and $108,162, respectively. The Company’s unsecured debt securities have a fixed charge coverage covenant which is calculated differently in accordance with the terms of the agreements governing such securities. (5) Certain prior year amounts have been reclassified to conform to the current period presentation. 17 18 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS estate related businesses, and may be either secured or unsecured. Our loan portfolio includes whole loans and loan participations. Certain statements in this report, other than purely historical infor- mation, including estimates, projections, statements relating to our business plans, objectives and expected operating results, and the assumptions upon which those statements are based, are “ forward- looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act and Section 21E of the Exchange Act. Forward- looking statements are included with respect to, among other things, the Company’s current business plan, business strategy, portfolio management, prospects and liquidity. These forward- looking statements generally are identified by the words “believe,” “project,” “expect,” “anticipate,” “estimate,” “intend,” “strategy,” “plan,” “may,” “should,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. Forward- looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results or outcomes to differ materially from those contained in the forward- looking statements. Important factors that the Company believes might cause such differences are discussed in the section entitled, “Risk Factors” in Part I, Item 1a of the Company’s Form 10-K or otherwise accompany the forward- looking statements contained in this Annual Report. We undertake no obligation to update or revise publicly any forward- looking statements, whether as a result of new information, future events or otherwise. In assessing all forward- looking statements, readers are urged to read carefully all cautionary statements contained in this Annual Report. For purposes of this Management’s Discussion and Analysis of Financial Condition and Results of Operations, the terms “we,” “our” and “us” refer to iStar Inc. and its consolidated subsidiaries, unless the context indicates otherwise. This discussion summarizes the significant factors affecting our consolidated operating results, financial condition and liquidity during the three-year period ended December 31, 2015. This discussion should be read in conjunction with our consolidated financial statements and related notes for the three-year period ended December 31, 2015 included elsewhere in this Annual Report. These historical financial statements may not be indic- ative of our future performance. Certain prior year amounts have been reclassified in the Company’s consolidated financial statements and the related notes to conform to the current period presentation. Introduction iStar Inc., doing business as “iStar,” finances, invests in and develops real estate and real estate related projects as part of its fully- integrated investment platform. We have invested more than $35 billion over the past two decades and are structured as a REIT with a diversified portfolio focused on larger assets located in major metropolitan markets. Our primary business segments are real estate finance, net lease, operating properties and land and development. Our real estate finance portfolio is comprised of senior and mezza- nine real estate loans that may be either fixed-rate or variable-rate and are structured to meet the specific financing needs of borrowers. Our portfolio also includes preferred equity investments and senior and subordinated loans to business entities, particularly entities engaged in real estate or real Our net lease portfolio is primarily comprised of properties owned by us and leased to single creditworthy tenants where the properties are subject to long-term leases. Most of the leases provide for expenses at the facilities to be paid by the tenants on a triple net lease basis. The properties in this portfolio are diversified by property type and geographic location. In 2014, the Company partnered with a sovereign wealth fund to form a ven- ture in which the partners plan to contribute equity to acquire and develop net lease assets. Our operating properties portfolio is comprised of commercial and residential properties which represent a diverse pool of assets across a broad range of geographies and property types. We generally seek to repo- sition or redevelop these assets with the objective of maximizing their value through the infusion of capital and/or intensive asset management efforts. The commercial properties within this portfolio include office, retail, hotel and other property types. The residential properties within this portfolio are generally luxury condominium projects located in major U.S. cities where our strategy is to sell individual units through retail distribution channels. Our land and development portfolio is primarily comprised of land entitled for master planned communities as well as waterfront and urban infill land parcels located throughout the U.S. Master planned commu- nities represent large-scale residential projects that we will entitle, plan and/or develop and may sell through retail channels to home builders or in bulk. Waterfront parcels are generally entitled for residential projects and urban infill parcels are generally entitled for mixed-use projects. We may develop these properties ourself or sell to or partner with commercial real estate developers. Executive Overview We have continued to originate investments within our core busi- ness segments of real estate finance and net lease, which we anticipate should drive future revenue growth. In addition, we have made significant investments within our operating property and land and development port- folios in order to better position assets for sale. Through strategic ventures, we have partnered with other providers of capital within our net lease seg- ment and with developers with residential building expertise within our land and development segment. These partnerships have had a positive impact on our business, particularly in our land and development segment, which experienced an increase in revenue in 2015. Access to the capital markets has allowed us to extend our debt maturity profile, lower our cost of capital and become primarily an unse- cured borrower. In 2015, we entered into the 2015 Revolving Credit Facility with a maximum capacity of $250.0 million. In 2014, we fully repaid our larg- est secured credit facility using proceeds from unsecured notes issuances. This repayment unencumbered $2.0 billion of collateral and provides us with additional liquidity as we now retain 100% of the proceeds from sales and repayments of these previously encumbered assets, rather than directing them to repay the facility. As of December 31, 2015, we had $711.1 million of cash, which we expect to use primarily to fund future investment activities, pay down debt, and for general corporate purposes. During the year ended December 31, 2015, three of our four business segments, including real estate finance, net lease and operating properties, contributed positively to our earnings. We continue to work on repositioning or redeveloping our transitional operating properties and progressing on the entitlement and development of our land and development assets in order to maximize their value. We intend to continue these efforts, with the objective of having these assets contribute positively to earnings in the future. For the year ended December 31, 2015, we recorded a net loss allocable to common shareholders of $52.7 million, compared to a net loss of $33.7 million during the prior year. Adjusted income allocable to common shareholders for the year ended December 31, 2015 was $84.0 million, compared to $109.4 mil- lion during the prior year. During the year ended December 31, 2015, we recognized $62.8 million less in equity method earnings than we did in the prior year, primarily associated with the sales of certain investments in 2014. This decrease was partially offset by an increase in total gross margin from our land and development portfolio, which improved to $49.5 million in 2015 from $17.3 million in 2014. Results of Operations for the Year Ended December 31, 2015 compared to the Year Ended December 31, 2014 For the Years Ended December 31, (in thousands) Operating lease income Interest income Other income Land development revenue Total revenue Interest expense Real estate expenses Land development cost of sales Depreciation and amortization General and administrative Provision for (recovery of) loan losses Impairment of assets Other expense Total costs and expenses Loss on early extinguishment of debt, net Earnings from equity method investments Income tax expense Income from sales of real estate Net income (loss) 2015 2014 $ Change % Change $ 229,720 134,687 49,931 100,216 514,554 224,639 146,750 67,382 65,247 81,277 36,567 10,524 6,374 638,760 (281) 32,153 (7,639) 93,816 $ (6,157) $ 243,100 122,704 81,033 15,191 462,028 224,483 163,389 12,840 73,571 88,287 (1,714) 34,634 6,340 601,830 (25,369) 94,905 (3,912) 89,943 $ 15,765 $ (13,380) 11,983 (31,102) 85,025 52,526 156 (16,639) 54,542 (8,324) (7,010) 38,281 (24,110) 34 36,930 25,088 (62,752) (3,727) 3,873 $ (21,922) (6)% 10% (38)% >100% 11% –% (10)% >100% (11)% (8)% <(100)% (70)% 1% 6% (99)% (66)% 95% 4% <(100)% 19 Revenue – Operating lease income, which primarily includes income from net lease assets and commercial operating properties, decreased to $229.7 million in 2015 from $243.1 million in 2014. Operating lease income from net lease assets decreased slightly to $151.5 million in 2015 from $151.9 million in 2014. The net lease portfolio generated an unleveraged yield of 7.8% for 2015 as compared to 7.9% for 2014 as rental rates for new leases were lower than rental rates for leases that terminated since December 31, 2014. The decrease in operating lease income was driven primarily by a decrease related to asset sales offset by an increase in operating lease income from same store net lease assets. Operating lease income for same store net lease assets, defined as net lease assets we owned on or prior to January 1, 2014 and were in ser- vice through December 31, 2015, increased to $140.3 million in 2015 from $137.3 million in 2014 due primarily to an increase in rent per occupied square foot, which was $9.84 for 2015 and $9.56 for 2014, and an increase in the occupancy rate, which was 95.7% as of December 31, 2015 and 95.0% as of December 31, 2014. Operating lease income from commercial operating properties decreased to $77.0 million in 2015 from $87.7 million in 2014. This decrease was primarily due to the sale of a leasehold interest in an operating prop- erty and other asset sales, partially offset by additional income in 2015 for three commercial operating properties acquired in 2014 and an increase in leasing activity at other properties. Operating lease income for same store commercial operating properties, defined as commercial operating proper- ties, excluding hotels, we owned on or prior to January 1, 2014 and were in service through December 31, 2015, increased to $60.7 million in 2015 from $56.8 million in 2014 due primarily to an increase in occupancy rates, which increased to 74.7% as of December 31, 2015 from 68.2% as of December 31, 2014. The increase was partially offset by a decline in rent per occupied square foot for same store commercial operating properties, which was $21.64 for 2015 and $23.01 for 2014. Ancillary operating lease income for resi- dential operating properties and land and development assets decreased to $1.2 million in 2015 from $3.5 million in 2014. 20 Interest income increased to $134.7 million in 2015 as compared to $122.7 million in 2014 due primarily to an increase in the size of the loan portfolio, partially offset by $6.3 million of income recognized in 2014 from the acquisition and repayment of a loan. New investment originations and additional fundings on existing loans raised our average balance of per- forming loans to $1.52 billion for 2015 from $1.27 billion for 2014. The weighted average yield of our performing loans decreased to 8.8% for 2015 from 9.1% for 2014, excluding $6.3 million of income recognized from the acquisition and repayment of a loan, due primarily to lower interest rates on loan origi- nations in 2015 and payoffs of loans with higher interest rates. Other income decreased to $49.9 million in 2015 as compared to $81.0 million in 2014. The decrease in 2015 was due to gains on sales of non- performing loans of $19.1 million, income related to a lease modification fee of $5.3 million and income related to an early termination fee of $3.4 million all recognized in 2014. The decrease was partially offset by a $5.5 million financing commitment termination fee recognized in 2015. in an operating property and other asset sales in 2015 and accelerated depreciation related to terminated leases during 2014. General and administrative expenses decreased to $81.3 mil- lion in 2015 as compared to $88.3 million in 2015, primarily due to a decrease in compensation related costs pertaining to annual performance based bonuses. The net provision for loan losses was $36.6 million in 2015 as com- pared to a net recovery of loan losses of $1.7 million in 2014. Included in the net provision for 2015 were provisions for specific reserves of $34.1 million due primarily to one new non- performing loan and an increase in the general reserve of $2.5 million due primarily to new investment originations. Included in the net recovery for 2014 were recoveries of previously recorded loan loss reserves of $10.1 million, provisions for specific reserves of $4.1 million and an increase of $4.3 million in the general reserve due primarily to new invest- ment originations. Land development revenue and cost of sales – In 2015, we sold residential lots, units and parcels for proceeds of $100.2 million which had associated cost of sales of $67.4 million. In 2014, we sold residential lots and units for proceeds of $15.2 million which had associated cost of sales of $12.8 million. The increase in 2015 as compared to 2014 was primarily due to the progression of our land and development projects in 2015, including the sale of two land parcels for land development revenue of $62.8 million resulting in a gross margin of $24.2 million. In 2015, we recorded impairments on real estate assets totaling $10.5 million resulting from a change in business strategy on one land and development asset and two commercial operating properties and unfa- vorable local market conditions for one residential property. In 2014, we recorded impairments on real estate assets totaling $34.6 million resulting from changes in business strategies for one residential property and one land and development asset, continued unfavorable local market conditions at two real estate properties and the sale of net lease assets. Costs and expenses – Interest expense remained constant at $224.6 million in 2015 as compared to $224.5 million in 2014. This was due to a higher average outstanding debt balance offset by a lower weighted average cost of debt. The average outstanding balance of our debt increased to $4.18 billion for 2015 from $4.08 billion for 2014. Our weighted average cost of debt decreased to 5.4% for 2015 from 5.5% for 2014. Real estate expenses decreased to $146.8 million in 2015 as com- pared to $163.4 million in 2014. The decrease was primarily related to expenses associated with residential units, which decreased to $14.2 mil- lion in 2015 from $25.6 million in 2014 due to unit sales. The decrease was also related to a decline in expenses for commercial operating proper- ties to $81.7 million in 2015 from $87.9 million in 2014 which was primarily due to the sale of operating properties in 2015 and late 2014. Expenses for same store commercial operating properties, excluding hotels, increased slightly to $39.7 million from $39.2 million in 2015. Expenses for net lease assets decreased to $21.9 million in 2015 from $23.0 million in 2014. This decrease was primarily due to asset sales during 2014. Expenses for same store net lease assets increased to $20.2 million in 2015 from $19.9 million for 2014. Carry costs and other expenses on our land and development assets increased to $29.0 million in 2015 as compared to $26.9 million in 2014, primarily related to an increase in costs incurred on certain land and development projects and an increase in marketing costs. Depreciation and amortization decreased to $65.2 million during the year ended December 31, 2015 from $73.6 million for the same period in 2014. The decrease was primarily due to the sale of a leasehold interest Loss on early extinguishment of debt, net – In 2015 and 2014, we incurred losses on early extinguishment of debt of $0.3 million and $25.4 mil- lion, respectively. In 2015, net losses on the early extinguishment of debt related to accelerated amortization of discounts and fees in connection with amortization payments of our 2012 Secured Credit Facilities. In 2014, together with cash on hand, net proceeds from the 2014 issuances of our 4.00% senior unsecured notes due November 2017 and our 5.00% senior unsecured notes due July 2019 were used to fully repay and terminate our secured credit facility entered into in February 2013. As a result, in 2014, we expensed $22.8 million relating to accelerated amortization of discount and fees associated with the payoff of that secured credit facility. We also recorded $2.6 million of losses in 2014 related to the accelerated amortiza- tion of discounts and fees in connection with amortization payments that we made on our secured credit facilities. Earnings from equity method investments – Earnings from equity method investments decreased to $32.2 million in 2015 as compared to $94.9 million in 2014. In 2015, we recognized $23.6 million related to sales activity on a land development venture, $5.2 million related to leasing operations at our Net Lease Venture and an aggregate $3.4 million in earn- ings from our remaining equity method investments. In 2014, we recognized $56.8 million of income resulting from asset sales by two of our equity method investees and a legal settlement received by one of the investees. We also recognized $14.7 million of earnings related to sales activity on a land and development venture, $9.0 million of income related to carried interest from a previously held strategic investment and an aggregate $14.4 million related to earnings from our remaining equity method investments. Income tax (expense) benefit – Income taxes are primarily gener- ated by assets held in our TRS. Income tax expense increased to $7.6 million in 2015 as compared to $3.9 million in 2014. The increase in current income tax expense relates primarily to taxable income generated by the sales of TRS properties. Income from sales of real estate – Income from sales of real estate increased to $93.8 million in 2015 from $89.9 million in 2014. In 2015, we sold 12 net lease assets resulting in gains of $40.1 million. We also sold a commercial operating property for $68.5 million to a newly formed uncon- solidated entity in which we own a 50% equity interest and recognized a gain on sale of $13.6 million, reflecting our share of the interest sold. In 2015 and 2014, we sold residential condominiums that resulted in income of $40.1 million and $79.1 million, respectively. In 2014, we sold net lease assets with a carrying value of $8.0 million resulting in a gain of $6.2 million and a commercial operating property with a carrying value of $29.4 million result- ing in a gain of $4.6 million. Results of Operations for the Year Ended December 31, 2014 compared to the Year Ended December 31, 2013 For the Years Ended December 31, (in thousands) Operating lease income Interest income Other income Land development revenue Total revenue Interest expense Real estate expenses Land development cost of sales Depreciation and amortization General and administrative Provision for (recovery of) loan losses Impairment of assets Other expense Total costs and expenses Loss on early extinguishment of debt, net Earnings from equity method investments Loss on transfer of interest to unconsolidated subsidiary Income tax (expense) benefit Income (loss) from discontinued operations Gain from discontinued operations Income from sales of real estate Net income (loss) 2014 2013 $ Change % Change $ 243,100 122,704 81,033 15,191 462,028 224,483 163,389 12,840 73,571 88,287 (1,714) 34,634 6,340 601,830 (25,369) 94,905 – (3,912) – – 89,943 $ 15,765 $ 234,567 108,015 48,208 – 390,790 266,225 157,441 – 71,266 92,114 5,489 12,589 8,050 613,174 (33,190) 41,520 (7,373) 659 644 22,233 86,658 $ (111,233) $ 8,533 14,689 32,825 15,191 71,238 (41,742) 5,948 12,840 2,305 (3,827) (7,203) 22,045 (1,710) (11,344) 7,821 53,385 7,373 (4,571) (644) (22,233) 3,285 $ 126,998 4% 14% 68% 100% 18% (16)% 4% 100% 3% (4)% <(100)% >100% (21)% (2)% (24)% >100% 100% <(100)% (100)% (100)% 4% >100% 21 Revenue – Operating lease income, which primarily includes income from net lease assets and commercial operating properties, increased to $243.1 million in 2014 from $234.6 million in 2013. of December 31, 2013. We had two net lease assets which were sold to our Net Lease Venture in 2014 that, prior to their sale, contributed an additional $2.0 million of operating lease income in 2014 as compared to 2013. Operating lease income from net lease assets increased to $151.9 million in 2014 from $147.3 million in 2013. The net lease portfolio gen- erated an unleveraged yield of 7.9% for 2014 as compared to 7.2% for 2013 as rental rates for new leases were greater than rental rates for leases that terminated since December 31, 2013. Operating lease income for same store net lease assets, defined as net lease assets we owned on or prior to January 1, 2013 and were in service through December 31, 2014, increased to $148.3 million in 2014 from $146.2 million in 2013 due primarily to an increase in rent per occupied square foot for same store net lease assets, which was $9.86 for 2014 as compared to $9.62 for 2013. The increase in operating lease income was also due to higher occupancy rates for same store net lease assets, which was 95.2% as of December 31, 2014 as compared to 93.0% as Operating lease income from commercial operating properties increased to $87.7 million in 2014 from $86.4 million in 2013 as rental rates for new leases were greater than leases that terminated since December 31, 2013. Operating lease income for same store commercial operating prop- erties, defined as commercial operating properties, excluding hotels, we owned on or prior to January 1, 2013 and were in service through December 31, 2014, decreased to $81.6 million in 2014 from $84.9 million in 2013 due primarily to a decline in rent per occupied square foot for same store commercial operating properties, which was $24.52 for 2014 and $26.06 for 2013. The decline was partially offset by an increase in occupancy rates for same store commercial operating properties, which increased to 65.0% as of December 31, 2014 from 62.8% as of December 31, 2013. In 22 addition, we acquired title to additional commercial operating proper- ties in 2014, which contributed $4.5 million to operating lease income in 2014. Ancillary operating lease income for residential operating properties increased $2.6 million in 2014 as compared to 2013. General and administrative expenses decreased to $88.3 million in 2014 as compared to $92.1 million in 2013, primarily due to a reduction in stock-based compensation expense, based on certain previously issued awards becoming fully amortized in 2013. Interest income increased to $122.7 million in 2014 as compared to $108.0 million in 2013 due primarily to increases in the volume and interest rates of performing loans. New investment originations and additional fund- ings of existing loans raised our average balance of performing loans to $1.27 billion for 2014 from $1.23 billion for 2013. The weighted average yield of our performing loans increased to 9.1%, excluding $6.3 million of income recognized from the acquisition and repayment of a loan, for 2014 from 7.6% for 2013 due primarily to higher interest rates for new loan originations in 2014 and payoffs of loans with lower interest rates. The net recovery of loan losses was $1.7 million in 2014 as com- pared to a net provision for loan losses of $5.5 million in 2013. Included in the net recovery for 2014 were recoveries of previously recorded loan loss reserves of $10.1 million, provisions for specific reserves of $4.1 million and an increase of $4.3 million in the general reserve due primarily to new investment originations. Included in the net recovery for 2013 were specific reserves of $72.5 million, which were established on non- performing loans, offset by recoveries of previously recorded loan loss reserves of $63.1 million during the year. Other income increased to $81.0 million in 2014 as compared to $48.2 million in 2013. The increase was due to gains on sales of non- performing loans of $19.1 million as well as $16.5 million of income related to asset related settlements, $3.8 million of ancillary income from properties acquired in 2014 and $2.3 million of prior year tax refunds. The increases were offset in part by a decline of $7.2 million due primarily to the conversion of hotel rooms to residential units to be sold at a property and $4.0 million received for the settlement of a property- related lawsuit in 2013. In 2014, we recorded impairments on real estate assets totaling $34.6 million resulting from changes in business strategies for one residen- tial property and one land and development asset, continued unfavorable local market conditions at two real estate properties and the sale of several net lease assets. In 2013, we recorded $14.4 million of impairments on real estate assets, including $1.8 million recorded in discontinued operations, due primarily to a change in local market conditions and a change in business strategy for one residential property. Land development revenue and cost of sales – In 2014, we sold residential lots and units from three of our master planned community prop- erties for proceeds of $15.2 million which had associated cost of sales of $12.8 million. Costs and expenses – Interest expense decreased to $224.5 mil- lion in 2014 as compared to $266.2 million in 2013 due to a lower average outstanding debt balance and a lower weighted average cost of debt. The average outstanding balance of our debt declined to $4.08 billion for 2014 from $4.46 billion for 2013. Our weighted average effective cost of debt decreased to 5.5% for 2014 from 5.9% for 2013. The decline was primarily a result of the refinancing of higher interest rate senior unsecured notes with lower interest rate senior unsecured notes during 2013. Real estate expenses increased to $163.4 million in 2014 as com- pared to $157.4 million in 2013. Expenses for commercial operating properties increased to $87.9 million in 2014 from $81.1 million in 2013. In 2014, expenses for same store commercial operating properties, excluding hotels, increased to $53.3 million from $51.7 million in 2013 due primarily to higher operating expenses at two properties. We acquired title to additional commercial operating properties in 2014, which contributed $9.2 million to real estate expenses in 2014. Additionally, expenses for hotel properties decreased to $22.7 million in 2014 from $28.5 million in 2013 due primarily to the con- version of hotel rooms to residential units being sold at a hotel property. Costs associated with residential units increased to $25.6 million in 2014 from $19.8 million in 2013 due to sales assessments at one of our residential properties and carrying costs for additional residential units where con- struction was completed, offset by a reduction of expenses due to the sale of residential units since December 31, 2013. Carry costs and other expenses on our land and development assets decreased to $26.9 million in 2014 as compared to $33.8 million in 2013, primarily related to a decrease in costs incurred on certain land and development assets prior to development. Loss on early extinguishment of debt, net – In 2014 and 2013, we incurred losses on early extinguishment of debt of $25.4 million and $33.2 million, respectively. In 2014, together with cash on hand, net proceeds from the 2014 issuances of our 4.00% senior unsecured notes due November 2017 and our 5.00% senior unsecured notes due July 2019 were used to fully repay and terminate our secured credit facility entered into in February 2013. As a result, in 2014, we expensed $22.8 million relating to accelerated amortization of discount and fees associated with the payoff of that secured credit facility. We also recorded $2.6 million of losses related to the accel- erated amortization of discounts and fees in connection with amortization payments that we made on our secured credit facilities. In 2013, we incurred $7.7 million of losses on the early extinguishment of debt due to the accelerated amortization of discounts and fees in con- nection with the refinancing of a secured credit facility. We also recorded $13.2 million of losses related to the accelerated amortization of discounts and fees in connection with amortization payments that we made on our secured credit facilities. We also redeemed our 5.95% senior unsecured notes due October 2013 and 5.70% senior unsecured notes due March 2014 prior to maturity and incurred $12.3 million of losses related to prepayment penalties and the acceleration of amortization of discounts. Earnings from equity method investments – Earnings from equity method investments increased to $94.9 million in 2014 as compared to $41.5 million in 2013. In 2014, we recognized $56.8 million of income result- ing from asset sales by two of our equity method investees and a legal settlement received by one of the investees. We also recognized $14.7 mil- lion of earnings related to sales activity on a land development venture and $9.0 million of income related to carried interest from a previously held strategic investment. The increase was offset by $12.0 million of income primarily related to asset sales by one of our strategic investments in 2013 and the sale of our interest in LNR Property Corp. in April 2013. We had no equity in earnings from LNR during 2014 as compared to 2013 in which we recorded net equity in earnings of $14.5 million. Loss on transfer of interest to unconsolidated subsidiary – In 2013, we entered into a venture with a national homebuilder to jointly develop res- idential lots in the first phase of Spring Mountain Ranch, a 1,400-lot master planned community. We contributed the initial phase of land, which had a carrying value of $24.1 million, to the venture in exchange for a retained interest of $16.7 million, resulting in a $7.4 million loss. Income tax (expense) benefit – Income taxes are primarily gener- ated by assets held in our TRS. Income taxes increased to a net tax expense of $3.9 million in 2014 as compared to a tax benefit of $0.7 million in 2013. The period to period difference was due primarily to taxable income generated by sales of TRS properties. Discontinued operations – In 2014, we adopted ASU 2014-08 (refer to Note 4), which raised the threshold for discontinued operations report- ing to disposals of components that are considered strategic shifts in a company’s business. There were no disposals that met this threshold during 2014. Income (loss) from discontinued operations in 2013 includes operating results from net lease assets and commercial operating properties held for sale or sold as of December 31, 2013. During 2013, we sold commercial oper- ating properties with a total carrying value of $72.6 million, which resulted in a net gain of $18.6 million and net lease assets with a total carrying value of $18.7 million which resulted in a net gain of $2.2 million. Income from sales of real estate – In 2014 and 2013, we sold residential condominiums that resulted in income of $79.1 million and $82.6 million, respectively. In 2014, we also sold net lease assets with a carrying value of $8.0 million resulting in a gain of $6.2 million and a com- mercial operating property with a carrying value of $29.4 million resulting in a gain of $4.6 million. In 2013, we sold land for proceeds of $36.7 million that resulted in income of $4.0 million. Adjusted Income In addition to net income (loss) prepared in conformity with GAAP, we use adjusted income, a non-GAAP financial measure, to measure our oper- ating performance. Adjusted income represents net income (loss) allocable to common shareholders, prior to the effect of depreciation and amortization, provision for (recovery of) loan losses, impairment of assets, loss on transfer of interest to unconsolidated subsidiary, stock-based compensation expense, and the non-cash portion of gain (loss) on early extinguishment of debt (“Adjusted Income”). We believe Adjusted Income is a useful measure to consider, in addition to net income (loss), as it may help investors evaluate our operating perfor- mance prior to certain non-cash items. Adjusted Income should be examined in conjunction with net income (loss) as shown in our consolidated statements of operations. Adjusted Income should not be considered as an alternative to net income (loss) (determined in accordance with GAAP), as an indicator of our performance, or to cash flows from operating activities (determined in accordance with GAAP) as a measure of our liquidity, nor is Adjusted Income indicative of funds available to fund our cash needs or available for distribution to shareholders. Rather, Adjusted Income is an additional measure for us to use to analyze how our business is performing. It should be noted that our manner of calculating Adjusted Income may differ from the calculations of similarly- titled measures by other companies. 23 For the Years Ended December 31, 2015 2014 2013 2012 2011 (in thousands) Adjusted Income Net income (loss) allocable to common shareholders Add: Depreciation and amortization(1) Add/Less: Provision for (recovery of) loan losses Add: Impairment of assets(2) Add: Loss on transfer of interest to unconsolidated subsidiary Add: Stock-based compensation expense Add: Loss (gain) on early extinguishment of debt, net(3) Less: HPU/Participating Security allocation Adjusted income (loss) allocable to common shareholders $ (52,675) 72,132 36,567 18,509 – 12,013 281 (2,850) $ 83,977 $ (33,722) 76,287 (1,714) 34,634 – 13,314 25,369 (4,791) $ 109,377 $ (155,769) 72,439 5,489 14,353 7,373 19,261 19,655 (4,478) $ (21,677) $ (272,997) 70,786 81,740 36,354 – 15,293 22,405 (7,428) $ (53,847) $ (62,387) 63,928 46,412 22,386 – 29,702 (101,466) (1,891) (3,316) $ Explanatory Notes: (1) For the years ended December 31, 2013, 2012 and 2011, depreciation and amortization includes $264, $2,016 and $5,837, respectively, of depreciation and amortization reclassified to discontinued operations. Depreciation and amortization also includes our proportionate share of depreciation and amortization expense for equity method investments and excludes the portion of depreciation and amortization expense allocable to noncontrolling interests. (2) For the year ended December 31, 2015, impairment of assets includes impairments on cost and equity method investments recorded in “Other income” and “Earnings from equity method investments”, respectively, in our consolidated statements of operations. For the years ended December 31, 2013, 2012 and 2011, impairment of assets includes $1,764, $22,576 and $9,147, respectively, of impairment of assets reclassified to discontinued operations. (3) For the years ended December 31, 2013 and 2012, loss on early extinguishment of debt excludes the portion of losses paid in cash of $13,535 and $15,411, respectively. 24 Risk Management Loan Credit Statistics – The table below summarizes our non- performing loans and the reserves for loan losses associated with our loans ($ in thousands): As of December 31, 2015 2014 Non- performing loans Carrying value(1) As a percentage of total carrying value of loans Reserve for loan losses Asset- specific reserves for loan losses As a percentage of gross carrying value of impaired loans Total reserve for loan losses As a percentage of total loans before loan loss reserves $ 60,327 $ 65,047 5.5% 3.9% $ 72,165 $ 64,990 54.5% 46.5% $ 108,165 $ 98,490 6.6% 7.6% Explanatory Note: (1) As of December 31, 2015 and 2014, carrying values of non- performing loans are net of asset- specific reserves for loan losses of $72.2 million and $64.2 million, respectively. Non- Performing Loans – We designate loans as non- performing at such time as: (1) the loan becomes 90 days delinquent; (2) the loan has a maturity default; or (3) management determines it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan. All non- performing loans are placed on non- accrual status and income is only recognized in certain cases upon actual cash receipt. As of December 31, 2015, we had non- performing loans with an aggregate carry- ing value of $60.3 million compared to non- performing loans of $65.0 million at December 31, 2014. We expect that our level of non- performing loans will fluctuate from period to period. Reserve for Loan Losses – The reserve for loan losses was $108.2 million as of December 31, 2015, or 6.6% of total loans, compared to $98.5 million or 7.6% as of December 31, 2014. For the year ended December 31, 2015, the provision for loan losses includes specific reserves of $34.1 million and an increase of $2.5 million in the general reserve due primarily to new investment originations. We expect that our level of reserve for loan losses will fluctuate from period to period. Due to the volatility of the commercial real estate market, the process of estimating collateral values and reserves requires the use of significant judgment. We currently believe there are adequate collateral and reserves to support the carrying values of the loans. The reserve for loan losses includes an asset- specific component and a formula-based component. An asset- specific reserve is established for an impaired loan when the estimated fair value of the loan’s collat- eral less costs to sell is lower than the carrying value of the loan. As of December 31, 2015, asset- specific reserves increased to $72.2 million com- pared to $65.0 million as of December 31, 2014, primarily due to one new non- performing loan. The formula-based general reserve is derived from estimated principal default probabilities and loss severities applied to groups of performing loans based upon risk ratings assigned to loans with similar risk characteristics during our quarterly loan portfolio assessment. During this assessment, we perform a comprehensive analysis of our loan portfolio and assign risk ratings to loans that incorporate management’s current judg- ments about their credit quality based on all known and relevant factors that may affect collectability. We consider, among other things, payment status, lien position, borrower financial resources and investment in col- lateral, collateral type, project economics and geographical location as well as national and regional economic factors. This methodology results in loans being segmented by risk classification into risk rating categories that are associated with estimated probabilities of default and principal loss. We estimate loss rates based on historical realized losses experienced within our portfolio and take into account current economic conditions affecting the commercial real estate market when establishing appropriate time frames to evaluate loss experience. The general reserve increased to $36.0 million or 2.4% of perform- ing loans as of December 31, 2015, compared to $33.5 million or 2.9% of performing loans as of December 31, 2014. This increase was primarily attrib- utable to the increase in the balance of performing loans, which was driven by new investment originations. Risk concentrations – Concentrations of credit risks arise when a number of borrowers or tenants related to our investments are engaged in similar business activities, or activities in the same geographic region, or have similar economic features that would cause their ability to meet contractual obligations, including those to us, to be similarly affected by changes in economic conditions. Substantially all of our real estate as well as assets collateralizing our loans receivable are located in the United States. As of December 31, 2015, the only states with a concentration greater than 10.0% were New York with 19.9% and California with 13.6%. As of that date, we also had approximately 30.3% of the carrying value of our assets related to proper- ties located in the northeastern U.S., 17.7% related to properties located in the western U.S., 15.7% related to properties located in the southeastern U.S., 14.0% related to properties located in the mid- Atlantic U.S. and 10.1% related to properties located in the southwestern region of the U.S. In addi- tion, as of December 31, 2015, we had $18.6 million of international assets. As of December 31, 2015, our portfolio contains concentrations in the following asset types: land 22.7%, office/industrial 22.5%, mixed use/mixed collateral 15.8% and hotel 10.6%. Additional information regarding property/collateral type and geographical region for each segment is in Item 1 – “Business.” We underwrite the credit of prospective borrowers and tenants and often require them to provide some form of credit support such as corporate guarantees, letters of credit and/or cash security deposits. Although our loans and real estate assets are geographically diverse and the borrow- ers and tenants operate in a variety of industries, to the extent we have a significant concentration of interest or operating lease revenues from any single borrower or tenant, the inability of that borrower or tenant to make its payment could have a material adverse effect on us. As of December 31, 2015, our five largest borrowers or tenants collectively accounted for approx- imately 21% of our 2015 revenues, of which no single customer accounts for more than 6%. Liquidity and Capital Resources During the year ended December 31, 2015, we committed to new investments totaling $756.9 million. We funded a total of $662.5 million associated with new investments, prior financing commitments as well as ongoing development during the year. The fundings included $479.6 mil- lion in lending and other investments, $95.3 million to develop our land assets and $87.6 million of capital to reposition or redevelop our operat- ing properties and invest in net lease assets. Also during the year ended December 31, 2015, we generated $1.0 billion of proceeds from loan repay- ments and asset sales within our portfolio, comprised of $454.8 million from real estate finance, $283.8 million from operating properties, $102.3 million from net lease assets, $98.1 million from land and development assets and $32.2 million from other investments. These amounts are inclusive of fund- ings and proceeds from both consolidated investments and our pro rata share from equity method investments. As of December 31, 2015, we had unrestricted cash of $711.1 million. The following table outlines our capital expenditures on real estate and land and development assets as reflected in our consolidated state- ments of cash flows for the years ended December 31, 2015 and 2014, by segment ($ in thousands): For the Years Ended December 31, Operating Properties Net Lease 2014 $ 74,540 $ 58,631 9,833 Total capital expenditures on real estate assets $ 81,525 $ 68,464 $ 88,219 $ 74,323 6,985 2015 Land and Development Total capital expenditures on land and development assets $ 88,219 $ 74,323 Our primary cash uses over the next 12 months are expected to be funding of investments, repayments of debt, capital expenditures and fund- ing ongoing business operations. We repaid the $105.8 million outstanding balance of our 6.05% senior notes due April 2015 at their maturity. We have other debt maturities of $926.4 million due before December 31, 2016. Over the next 12 months, we currently expect to fund in the range of approximately $225 million to $300 million of capital expenditures within our portfolio. The majority of these amounts relate to our land and development and operating properties business segments and include multifamily and resi- dential development activities which are expected to include approximately $130 million in vertical construction. The amount spent will depend on the pace of our development activities as well as the extent to which we strate- gically partner with others to complete these projects. As of December 31, 2015, we also had approximately $779 million of maximum unfunded com- mitments associated with our investments of which we expect to fund the majority of over the next two years, assuming borrowers and tenants meet all milestones and performance hurdles and all other conditions to fundings are met. See “Unfunded Commitments” below. Our capital sources to meet cash uses through the next 12 months and beyond will primarily be expected to include cash on hand, income from our portfolio, loan repayments from borrowers, proceeds from asset sales and capital raised through debt and/ or equity capital raising transactions. We cannot predict with certainty the specific transactions we will undertake to generate sufficient liquidity to meet our obligations as they come due. We will adjust our plans as appropriate in response to changes in our expectations and changes in market conditions. While economic trends have stabilized, it is not possible for us to predict whether these trends will continue or to quantify the impact of these or other trends on our finan- cial results. 25 Contractual Obligations – The following table outlines the contractual obligations related to our long-term debt obligations, loan participations payable and operating lease obligations as of December 31, 2015 (see Note 10 of the Notes to Consolidated Financial Statements). (in thousands) Long-Term Debt Obligations: Unsecured notes Secured credit facilities Revolving credit facility Secured term loans Other debt obligations Total principal maturities Interest Payable(1) Loan Participations Payable(2) Operating Lease Obligations Total(3) Explanatory Notes: Total Less Than 1 Year 1–3 Years 3–5 Years 5–10 Years After 10 Years Amounts Due By Period $ 3,221,125 339,717 250,000 239,547 100,000 4,150,389 546,526 153,000 26,824 $ 4,876,739 $ 926,403 – – 9,157 – 935,560 196,963 – 5,722 $ 1,138,245 $ 1,524,722 339,717 250,000 26,697 – 2,141,136 243,963 100,000 9,395 $ 2,494,494 $ 770,000 $ – – – – – 39,189 163,268 – 809,189 69,183 53,000 6,884 $ 938,256 – 163,268 17,871 – 4,095 $ 185,234 $ – – – 1,236 100,000 101,236 18,546 – 728 $ 120,510 Variable-rate debt assumes 1-month LIBOR of 0.42% and 3-month LIBOR of 0.32% that were in effect as of December 31, 2015. (1) (2) Refer to Note 9 to the consolidated financial statements. (3) We also have issued letters of credit totaling $2.2 million in connection with our investments. See “Unfunded Commitments” below, for a discussion of certain unfunded commitments related to our lending and net lease businesses. 2015 Revolving Credit Facility – On March 27, 2015, we entered into our 2015 Revolving Credit Facility. Borrowings under this credit facility bear interest at a floating rate indexed to one of several base rates plus a margin which adjusts upward or downward based upon our corporate credit rating. An undrawn credit facility commitment fee ranges from 0.375% to 0.50%, based on average utilization each quarter. During the year ended December 31, 2015, the weighted average cost of the credit facility was 3.13%. Commitments under the revolving facility mature in March 2018. At maturity, we may convert outstanding borrowings to a one year term loan which matures in quarterly installments through March 2019. 2012 Secured Credit Facilities – In March 2012, we entered into an $880.0 million senior secured credit agreement providing for two tranches of term loans: a $410.0 million 2012 A-1 tranche due March 2016, which bore interest at a rate of LIBOR + 4.00% (the “2012 Tranche A-1 Facility”), and a $470.0 million 2012 A-2 tranche due March 2017, which bears interest at a rate of LIBOR + 5.75% (the “2012 Tranche A-2 Facility,” together the “2012 Secured Credit Facilities”). The 2012 A-1 and A-2 tranches were issued at 98.0% of par and 98.5% of par, respectively, and both tranches include a LIBOR floor of 1.25%. Proceeds from the 2012 Secured Credit Facilities, together with cash on hand, were used to repurchase and repay other outstanding debt. The 2012 Secured Credit Facilities are collateralized by a first lien on a fixed pool of assets. Proceeds from principal repayments and sales of collateral are applied to amortize the 2012 Secured Credit Facilities. Proceeds received for interest, rent, lease payments and fee income are retained by us. We may also make optional prepayments, subject to pre- payment fees. The 2012 Tranche A-1 Facility was fully repaid in August 2013. Additionally, through December 31, 2015, we made cumulative amortiza- tion repayments of $130.3 million on the 2012 Tranche A-2 Facility. For the years ended December 31, 2015 and 2014, repayments of the 2012 Tranche A-2 Facility prior to maturity resulted in losses on early extinguishment of debt of $0.3 million and $1.5 million, respectively, related to the accelerated amortization of discounts and unamortized deferred financing fees on the portion of the facility that was repaid. For the year ended December 31, 2013, repayments of the 2012 Tranche A-1 Facility prior to scheduled amortization dates resulted in losses on early extinguishment of debt of $4.4 million. These amounts are included in “Loss on early extinguishment of debt, net” in our consolidated statements of operations. Unsecured Notes – In June 2014, we issued $550.0 million aggre- gate principal amount of 4.00% senior unsecured notes due November 2017 and $770.0 million aggregate principal amount of 5.00% senior unsecured notes due July 2019. Net proceeds from these transactions, together with cash on hand, were used to fully repay and terminate the February 2013 Secured Credit Facility which had an outstanding balance of $1.32 billion. 26 asset type are as follows ($ in thousands): Encumbered/Unencumbered Assets – As of December 31, 2015 and 2014, the carrying value of our encumbered and unencumbered assets by As of December 31, 2015 2014 Real estate, net Real estate available and held for sale Land and development Loans receivable and other lending investments, net(1)(2) Other investments Cash and other assets Total Encumbered Assets Unencumbered Assets $ 816,721 10,593 17,714 170,162 22,352 – $ 1,037,542 $ 777,262 126,681 984,249 1,314,823 231,820 1,033,515 $ 4,468,350 Encumbered Assets Unencumbered Assets $ 1,213,960 156,807 961,055 1,364,828 336,411 768,475 $ 4,801,536 $ 602,471 10,496 17,907 46,515 17,708 $ 695,097 – Explanatory Notes: (1) As of December 31, 2015 and 2014, the amounts presented exclude general reserves for loan losses of $36.0 million and $33.5 million, respectively. (2) As of December 31, 2015, the amount presented excludes loan participations of $153.0 million. Debt Covenants Our outstanding unsecured debt securities contain corporate level covenants that include a covenant to maintain a ratio of unencumbered assets to unsecured indebtedness of at least 1.2x and a covenant not to incur additional indebtedness (except for incurrences of permitted debt), if on a pro forma basis, our consolidated fixed charge coverage ratio, determined in accordance with the indentures governing our debt securities, is 1.5x or lower. If any of our covenants are breached and not cured within applicable cure periods, the breach could result in acceleration of our debt securities unless a waiver or modification is agreed upon with the requisite percent- age of the bondholders. While our ability to incur additional indebtedness under the fixed charge coverage ratio is currently limited, we are permitted to incur indebtedness for the purpose of refinancing existing indebtedness and for other permitted purposes under the indentures. The 2012 Secured Credit Facilities and the 2015 Revolving Credit Facility contain certain covenants, including covenants relating to collateral coverage, dividend payments, restrictions on fundamental changes, trans- actions with affiliates, matters relating to the liens granted to the lenders and the delivery of information to the lenders. In particular, the 2012 Secured Credit Facilities require us to maintain collateral coverage of at least 1.25x outstanding borrowings on the facilities. The 2015 Revolving Credit Facility is secured by a borrowing base of assets and requires us to maintain both col- lateral coverage of at least 1.5x outstanding borrowings on the facility and a consolidated ratio of cash flow to fixed charges of at least 1.5x. The 2015 Revolving Credit Facility does not require that proceeds from the borrowing base be used to pay down outstanding borrowings provided the collateral coverage remains at least 1.5x outstanding borrowings on the facility. To satisfy this covenant, we have the option to pay down outstanding borrow- ings or substitute assets in the borrowing base. In addition, for so long as we maintain our qualification as a REIT, the 2012 Secured Credit Facilities and the 2015 Revolving Credit Facility permit us to distribute 100% of our REIT taxable income on an annual basis (prior to deducting certain cumulative NOL carryforwards in the case of the 2015 Revolving Credit Facility). We may not pay common dividends if we cease to qualify as a REIT. The 2012 Secured Credit Facilities and the 2015 Revolving Credit Facility contain cross default provisions that would allow the lenders to declare an event of default and accelerate our indebtedness to them if we fail to pay amounts due in respect of our other recourse indebtedness in excess of specified thresholds or if the lenders under such other indebtedness are otherwise permitted to accelerate such indebtedness for any reason. The indentures governing our unsecured public debt securities permit the bondholders to declare an event of default and accelerate our indebtedness to them if our other recourse indebtedness in excess of specified thresholds is not paid at final maturity or if such indebtedness is accelerated. Derivatives – Our use of derivative financial instruments is primar- ily limited to the utilization of interest rate swaps, interest rate caps or other instruments to manage interest rate risk exposure and foreign exchange contracts to manage our risk to changes in foreign currencies. See Note 12 of the Notes to Consolidated Financial Statements for further details. Off- Balance Sheet Arrangements – We are not dependent on the use of any off- balance sheet financing arrangements for liquidity. We have made investments in various unconsolidated ventures. See Note 7 of the Notes to Consolidated Financial Statements for further details of our uncon- solidated investments. Our maximum exposure to loss from these investments is limited to the carrying value of our investments and any unfunded com- mitments (see below). Unfunded Commitments – We generally fund construction and development loans and build-outs of space in net lease assets over a period of time if and when the borrowers and tenants meet established milestones and other performance criteria. We refer to these arrange- ments as Performance-Based Commitments. In addition, we sometimes establish a maximum amount of additional funding which we will make available to a borrower or tenant for an expansion or addition to a project if we approve of the expansion or addition in our sole discretion. We refer to these arrangements as Discretionary Fundings. Finally, we have commit- ted to invest capital in several real estate funds and other ventures. These arrangements are referred to as Strategic Investments. As of December 31, 2015, the maximum amounts of the fundings we may make under each category, assuming all performance hurdles and milestones are met under the Performance-Based Commitments, that we approve all Discretionary Fundings and that 100% of our capital committed to Strategic Investments is drawn down, are as follows (in thousands): Loans and Other Lending Investments Real Estate Other Investments Total Performance-Based Commitments Strategic Investments Discretionary Fundings Total $ 689,014 – 5,000 $ 694,014 $ 15,626 – – $ 15,626 $ 23,360 $ 728,000 45,940 5,000 $ 69,300 $ 778,940 45,940 – Stock Repurchase Program – In September 2015, our Board of Directors approved an increase in the repurchase limit under our previously approved stock repurchase program to $50.0 million. In December 2015, after having substantially utilized the availability approved in September 2015, our Board of Directors authorized a new $50.0 million repurchase program. The program authorizes the repurchase of common stock from time to time in open market and privately negotiated purchases, including pursuant to one or more trading plans. During the year ended December 31, 2015, we repurchased 5.7 million shares of our common stock for $70.4 mil- lion, at an average cost of $12.25 per share. There were no stock repurchases during the year ended December 31, 2014. As of December 31, 2015, we had remaining authorization to repurchase up to $48.7 million of common stock under our stock repurchase program. Subsequent to December 31, 2015, we repurchased 5.2 million shares of our outstanding common stock for $52.0 million, at an average cost of $10.10 per share. In February 2016, our Board of Directors authorized a new $50.0 million repurchase program. HPU Repurchase – In August 2015, we repurchased and retired all of our outstanding 14,888 HPUs, representing 2.8 million common stock equivalents. We repurchased these HPUs at fair value from current and former employees through an arms- length exchange offer. HPU holders could elect to receive $9.30 in cash or 0.7 shares of iStar common stock, or a combination thereof, per common stock equivalent underlying the HPUs. Approximately 37% of the outstanding HPUs were exchanged for $9.8 million in cash and approximately 63% of the outstanding HPUs were exchanged for 1.2 million shares of our common stock with a fair value of $15.2 million, representing the number of shares issued at the closing price of our common stock on August 13, 2015. The transaction value in excess of the HPUs carry- ing value of $9.8 million was recorded as a reduction to retained earnings (deficit) in our consolidated statements of changes in equity. Critical Accounting Estimates The preparation of financial statements in accordance with GAAP requires management to make estimates and judgments in certain circum- stances that affect amounts reported as assets, liabilities, revenues and expenses. We have established detailed policies and control procedures intended to ensure that valuation methods, including any judgments made as part of such methods, are well controlled, reviewed and applied consis- tently from period to period. We base our estimates on historical corporate and industry experience and various other assumptions that we believe to 27 28 be appropriate under the circumstances. For all of these estimates, we cau- tion that future events rarely develop exactly as forecasted, and, therefore, routinely require adjustment. During 2015, management reviewed and evaluated these critical accounting estimates and believes they are appropriate. Our significant accounting policies are described in Note 3 of the Notes to Consolidated Financial Statements. The following is a summary of accounting policies that require more significant management estimates and judgments: Reserve for loan losses – The reserve for loan losses reflects man- agement’s estimate of loan losses inherent in the loan portfolio as of the balance sheet date. If we determine that the collateral fair value less costs to sell is less than the carrying value of a collateral- dependent loan, we will record a reserve. The reserve is increased (decreased) through “Provision for (recovery of) loan losses” in our consolidated statements of operations and is decreased by charge-offs. During delinquency and the foreclosure process, there are typically numerous points of negotiation with the borrower as we work toward a settlement or other alternative resolution, which can impact the potential for loan repayment or receipt of collateral. Our policy is to charge off a loan when we determine, based on a variety of factors, that all commercially reasonable means of recovering the loan balance have been exhausted. This may occur at different times, including when we receive cash or other assets in a pre- foreclosure sale or take control of the underlying collateral in full satisfaction of the loan upon foreclosure or deed- in-lieu, or when we have otherwise ceased significant collection efforts. We consider circumstances such as the foregoing to be indicators that the final steps in the loan collection process have occurred and that a loan is uncollectible. At this point, a loss is confirmed and the loan and related reserve will be charged off. We have one portfolio segment, represented by commercial real estate lending, whereby we utilize a uniform process for determining our reserves for loan losses. The reserve for loan losses includes a general, formula-based component and an asset- specific component. The general reserve component covers performing loans and reserves for loan losses are recorded when (i) available information as of each balance sheet date indicates that it is probable a loss has occurred in the portfolio and (ii) the amount of the loss can be reasonably estimated. The formula-based general reserve is derived from estimated principal default probabilities and loss severities applied to groups of loans based upon risk ratings assigned to loans with similar risk characteristics during our quarterly loan portfolio assessment. During this assessment, we perform a comprehensive analysis of our loan portfolio and assign risk ratings to loans that incorporate management’s current judgments about their credit qual- ity based on all known and relevant internal and external factors that may affect collectability. We consider, among other things, payment status, lien position, borrower financial resources and investment in collateral, collateral type, project economics and geographical location as well as national and regional economic factors. This methodology results in loans being seg- mented by risk classification into risk rating categories that are associated with estimated probabilities of default and principal loss. Ratings range from “1” to “5” with “1” representing the lowest risk of loss and “5” representing the highest risk of loss. We estimate loss rates based on historical realized losses experienced within our portfolio and take into account current economic conditions affecting the commercial real estate market when establishing appropriate time frames to evaluate loss experience. The asset- specific reserve component relates to reserves for losses on impaired loans. We consider a loan to be impaired when, based upon current information and events, we believe that it is probable that we will be unable to collect all amounts due under the contractual terms of the loan agreement. This assessment is made on a loan-by-loan basis each quarter based on such factors as payment status, lien position, borrower financial resources and investment in collateral, collateral type, project economics and geographical location as well as national and regional economic fac- tors. A reserve is established for an impaired loan when the present value of payments expected to be received, observable market prices, or the estimated fair value of the collateral (for loans that are dependent on the collateral for repayment) is lower than the carrying value of that loan. Substantially all of our impaired loans are collateral dependent and impairment is measured using the estimated fair value of collateral, less costs to sell. We generally use the income approach through internally developed valuation models to estimate the fair value of the collateral for such loans. In more limited cases, we obtain external “as is” appraisals for loan collateral, generally when third party participations exist. Valuations are performed or obtained at the time a loan is determined to be impaired and designated non- performing, and they are updated if circumstances indicate that a sig- nificant change in value has occurred. In limited cases, appraised values may be discounted when real estate markets rapidly deteriorate. A loan is also considered impaired if its terms are modified in a troubled debt restructuring (“TDR”). A TDR occurs when we grant a conces- sion to a debtor that is experiencing financial difficulties. Impairments on TDR loans are generally measured based on the present value of expected future cash flows discounted at the effective interest rate of the original loan. The provision for (recovery of) loan losses for the years ended December 31, 2015, 2014 and 2013 were $36.6 million, $(1.7) million and $5.5 million, respectively. The total reserve for loan losses as of December 31, 2015 and 2014, included asset specific reserves of $72.2 million and $65.0 million, respectively, and general reserves of $36.0 million and $33.5 million, respectively. Acquisition of real estate – We generally acquire real estate assets or land and development assets through purchases or through foreclosure or deed-in-lieu of foreclosure in full or partial satisfaction of non- performing loans. When we acquire assets these properties are classified as “Real estate, net” or “Land and development” on our consolidated balance sheets. When we intend to hold, operate or develop the property for a period of at least 12 months, assets are classified as “Real estate, net,” and when we intend to market these properties for sale in the near term, assets are classi- fied as “Real estate available and held for sale.” When we purchase assets the properties are recorded at cost. Foreclosed assets classified as real estate and land and development are initially recorded at their estimated fair value and assets classified as assets held for sale are recorded at their estimated fair value less costs to sell. The excess of the carrying value of the loan over these amounts is charged-off against the reserve for loan losses. In both cases, upon acquisition, tangible and intangible assets and liabilities acquired are recorded at their estimated fair values. During the years ended December 31, 2015, 2014 and 2013, we received title to properties in satisfaction of mortgage loans with fair values of $13.4 million, $77.9 million and $31.1 million, respectively, for which those properties had served as collateral. Impairment or disposal of long-lived assets – Real estate assets to be disposed of are reported at the lower of their carrying amount or estimated fair value less costs to sell and are included in “Real estate avail- able and held for sale” on our consolidated balance sheets. The difference between the estimated fair value less costs to sell and the carrying value will be recorded as an impairment charge. Impairment for real estate assets disposed of or classified as held for sale on or before December 31, 2013 are included in “Income (loss) from discontinued operations” in our consoli- dated statements of operations. Impairment for real estate assets disposed of or classified as held for sale after December 31, 2013 are included in “Impairment of assets” in our consolidated statements of operations. Once the asset is classified as held for sale, depreciation expense is no longer recorded and historical operating results are reclassified to “Income (loss) from discontinued operations” in our consolidated statements of operations. We periodically review real estate to be held and used and land and development assets for impairment in value whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. The asset’s value is impaired only if management’s estimate of the aggregate future cash flows (undiscounted and without interest charges) to be generated by the asset (taking into account the antic- ipated holding period of the asset) is less than the carrying value. Such estimate of cash flows considers factors such as expected future operating income, trends and prospects, as well as the effects of demand, competi- tion and other economic factors. To the extent impairment has occurred, the loss will be measured as the excess of the carrying amount of the prop- erty over the fair value of the asset and reflected as an adjustment to the basis of the asset. Impairments of real estate and land and development assets are recorded in “Impairment of assets” in our consolidated statements of operations. During the year ended December 31, 2015, we recorded impair- ments on real estate and land and development assets totaling $10.5 million resulting from a change in business strategy and unfavorable local market conditions for certain assets. During the years ended December 31, 2014 and 2013, we recorded impairments on real estate and land and develop- ment assets totaling $34.6 million and $14.4 million, respectively, resulting from unfavorable local market conditions and changes in business strat- egy for certain assets. Of these amounts, $1.8 million for the year ended December 31, 2013 has been recorded in “Income (loss) from discontinued operations” in our consolidated statements of operations due to the assets being disposed of or classified as held for sale as of December 31, 2013. Identified intangible assets and liabilities – We record intangible assets and liabilities acquired at their estimated fair values, and determine whether such intangible assets and liabilities have finite or indefinite lives. As of December 31, 2015, all such acquired intangible assets and liabilities have finite lives. We amortize finite lived intangible assets and liabilities over the period which the assets and liabilities are expected to contribute directly or indirectly to the future cash flows of the business acquired. We review finite lived intangible assets for impairment whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. If we determine the carrying value of an intangible asset is not recoverable we will record an impairment charge to the extent its carrying value exceeds its estimated fair value. Impairments of intangibles are recorded in “Impairment of assets” in our consolidated statements of operations. Valuation of deferred tax assets – Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, as well as operating loss and tax credit carryfor- wards. We evaluate the realizability of our deferred tax assets and recognize a valuation allowance if, based on the available evidence, both positive and negative, it is more likely than not that some portion or all of our deferred tax assets will not be realized. When evaluating the realizability of our deferred tax assets, we consider, among other matters, estimates of expected future taxable income, nature of current and cumulative losses, existing and pro- jected book/tax differences, tax planning strategies available, and the general and industry specific economic outlook. This realizability analysis is inherently subjective, as it requires us to forecast our business and general economic environment in future periods. Changes in estimate of deferred tax asset realizability, if any are included in “Income tax (expense) benefit” in the consolidated statements of operations. While certain entities with NOLs may generate profits in the future, which may allow us to utilize the NOLs, we continue to record a full valuation allowance on the net deferred tax asset due to the history of losses and the uncertainty of the entities’ ability to generate such profits. We recorded a full valuation allowance of $53.9 million and $54.3 million as of December 31, 2015 and 2014, respectively. Variable interest entities – We evaluate our investments and other contractual arrangements to determine if our interests constitute variable interests in a variable interest entity (“VIE”) and if we are the primary ben- eficiary. There is a significant amount of judgment required to determine if an entity is considered a VIE and if we are the primary beneficiary. We first perform a qualitative analysis, which requires certain subjective deci- sions regarding our assessment, including, but not limited to, which interests create or absorb variability, the contractual terms, the key decision making powers, impact on the VIE’s economic performance and related party relationships. An iterative quantitative analysis is required if our qualitative analysis proves inconclusive as to whether the entity is a VIE or we are the primary beneficiary and consolidation is required. Fair value of assets and liabilities – The degree of management judgment involved in determining the fair value of assets and liabilities is dependent upon the availability of quoted market prices or observable market parameters. For financial and nonfinancial assets and liabilities that trade actively and have quoted market prices or observable market parameters, there is minimal subjectivity involved in measuring fair value. When observable market prices and parameters are not fully available, management judgment is necessary to estimate fair value. In addition, changes in market conditions may reduce the availability of quoted prices or observable data. For example, reduced liquidity in the capital markets or changes in secondary market activities could result in observable market inputs becoming unavailable. Therefore, when market data is not available, we would use valuation techniques requiring more management judgment to estimate the appropriate fair value measurement. See Note 16 of the Notes to Consolidated Financial Statements for a complete discussion on how we determine fair value of financial and non- financial assets and financial liabilities and the related measurement techniques and estimates involved. 29 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Market Risks Market risk is the exposure to loss resulting from changes in inter- est rates, foreign currency exchange rates, commodity prices and equity prices. In pursuing our business plan, the primary market risk to which we are exposed is interest rate risk. Our operating results will depend in part on the difference between the interest and related income earned on our assets and the interest expense incurred in connection with our interest- bearing liabilities. Changes in the general level of interest rates prevailing in the financial markets will affect the spread between our floating rate assets and liabilities subject to the net amount of floating rate assets/liabilities and the impact of interest rate floors and caps. Any significant compression of the spreads between interest- earning assets and interest- bearing liabilities could have a material adverse effect on us. In the event of a significant rising interest rate environment or eco- nomic downturn, defaults could increase and cause us to incur additional credit losses which would adversely affect our liquidity and operating results. Such delinquencies or defaults would likely have a material adverse effect on the spreads between interest- earning assets and interest- bearing liabilities. In addition, an increase in interest rates could, among other things, reduce the value of our fixed-rate interest- bearing assets and our ability to realize gains from the sale of such assets. Interest rates are highly sensitive to many factors, including govern- mental monetary and tax policies, domestic and international economic and political conditions, and other factors beyond our control. We monitor the spreads between our interest- earning assets and interest- bearing liabilities and may implement hedging strategies to limit the effects of changes in interest rates on our operations, including engaging in interest rate swaps, interest rate caps and other interest rate- related derivative contracts. Such strategies are designed to reduce our exposure, on specific transactions or on a portfolio basis, to changes in cash flows as a result of interest rate movements in the market. We do not enter into derivative contracts for speculative purposes or as a hedge against changes in our credit risk or the credit risk of our borrowers. While a REIT may utilize derivative instruments to hedge interest rate risk on its liabilities incurred to acquire or carry real estate assets without generating non- qualifying income, use of derivatives for other purposes will generate non- qualified income for REIT income test purposes. This includes hedging asset related risks such as credit, foreign exchange and interest rate exposure on our loan assets. As a result our ability to hedge these types of risks is limited. There can be no assurance that our profitability will not be materially adversely affected during any period as a result of changing interest rates. The following table quantifies the potential changes in net income should interest rates increase by 50 or 100 basis points and decrease by 10 basis points, assuming no change in the shape of the yield curve (i.e., rela- tive interest rates). The base interest rate scenario assumes the one-month LIBOR rate of 0.43% as of December 31, 2015. Actual results could differ significantly from those estimated in the table. Estimated Percentage Change In Net Income ($ in thousands) Change in Interest Rates -10 Basis Points Base Interest Rate +50 Basis Points +100 Basis Points Explanatory Note: Net Income(1) $ (1,318) – 6,598 14,747 (1) We have an overall net variable-rate asset position, which results in an increase in net income when rates increase and a decrease in net income when rates decrease. As of December 31, 2015, $807.8 million of our floating rate loans have a cumulative weighted average interest rate floor of 0.8% and $339.7 million of our floating rate debt has a cumulative weighted average interest rate floor of 1.25%. MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Exchange Act Rule 13a-15(f). Under the supervision and with the participation of the disclosure committee and other members of management, including the Chief Executive Officer and Chief Financial Officer, management carried out its evaluation of the effectiveness of the Company’s internal control over financial reporting based on the framework in Internal Control – Integrated Framework issued in 2013 by the Committee of Sponsoring Organizations of the Treadway Commission. Based on management’s assessment under the framework in Internal Control – Integrated Framework, management has concluded that its internal control over financial reporting was effective as of December 31, 2015. The Company’s internal control over financial reporting as of December 31, 2015, has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears on page 31. 30 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Shareholders of iStar Inc.: In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, comprehensive income (loss), changes in equity and cash flows present fairly, in all material respects, the financial position of iStar Inc. and its subsidiaries (collectively, the “Company”) at December 31, 2015 and December 31, 2014, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2015 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2015, based on criteria established inInternal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial report- ing, included in Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express opinions on these financial state- ments and on the Company’s internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence sup- porting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by manage- ment, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an under- standing of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a rea- sonable basis for our opinions. As discussed in Note 4 to the consolidated financial statements, the Company adopted accounting standards update (“ASU”) No. 2014-08, “Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity”, which changed the criteria for reporting discon- tinued operations in 2014. A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those poli- cies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and disposi- tions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the com- pany; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that con- trols may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. New York, New York February 26, 2016 31 CONSOLIDATED BALANCE SHEETS As of December 31, (In thousands, except per share data) Assets Real estate Real estate, at cost Less: accumulated depreciation Real estate, net Real estate available and held for sale Total real estate Land and development Loans receivable and other lending investments, net Other investments Cash and cash equivalents Accrued interest and operating lease income receivable, net Deferred operating lease income receivable, net Deferred expenses and other assets, net Total assets Liabilities and Equity Liabilities: Accounts payable, accrued expenses and other liabilities Loan participations payable, net Debt obligations, net Total liabilities 32 Commitments and contingencies (refer to Note 11) Redeemable noncontrolling interests (refer to Note 4) Equity: iStar Inc. shareholders’ equity: Preferred Stock Series D, E, F, G and I, liquidation preference $25.00 per share (refer to Note 13) Convertible Preferred Stock Series J, liquidation preference $50.00 per share (refer to Note 13) High Performance Units (refer to Note 13) Common Stock, $0.001 par value, 200,000 shares authorized, 81,109 and 85,191 shares issued and outstanding as of December 31, 2015 and 2014, respectively Additional paid-in capital Retained earnings (deficit) Accumulated other comprehensive income (loss) (refer to Note 13) Total iStar Inc. shareholders’ equity Noncontrolling interests Total equity Total liabilities and equity The accompanying notes are an integral part of the consolidated financial statements. 2015 2014 $ 2,050,541 (456,558) 1,593,983 137,274 1,731,257 1,001,963 1,601,985 254,172 711,101 18,436 97,421 206,557 $ 5,622,892 $ 2,276,913 (460,482) 1,816,431 167,303 1,983,734 978,962 1,377,843 354,119 472,061 16,367 98,262 181,785 $ 5,463,133 $ 214,835 152,326 4,143,683 4,510,844 – 10,718 $ 180,902 – 4,022,684 4,203,586 – 11,199 22 4 – 22 4 9,800 81 3,689,330 (2,625,474) (4,851) 1,059,112 42,218 1,101,330 $ 5,622,892 85 3,744,621 (2,556,469) (971) 1,197,092 51,256 1,248,348 $ 5,463,133 CONSOLIDATED STATEMENTS OF OPERATIONS For the Years Ended December 31, (In thousands, except per share data) Revenues: Operating lease income Interest income Other income Land development revenue Total revenues Costs and expenses: Interest expense Real estate expense Land development cost of sales Depreciation and amortization General and administrative Provision for (recovery of) loan losses Impairment of assets Other expense Total costs and expenses Income (loss) before earnings from equity method investments and other items Loss on early extinguishment of debt, net Earnings from equity method investments Loss on transfer of interest to unconsolidated subsidiary Income (loss) from continuing operations before income taxes Income tax (expense) benefit Income (loss) from continuing operations(1) Income (loss) from discontinued operations Gain from discontinued operations Income from sales of real estate Net income (loss) Net (income) loss attributable to noncontrolling interests Net income (loss) attributable to iStar Inc. Preferred dividends Net (income) loss allocable to HPU holders and Participating Security holders(2)(3) Net income (loss) allocable to common shareholders Per common share data(1): Income (loss) attributable to iStar Inc. from continuing operations – Basic and diluted Net income (loss) attributable to iStar Inc. – Basic and diluted Weighted average number of common shares – Basic and diluted Per HPU share data(1)(2): Income (loss) attributable to iStar Inc. from continuing operations – Basic and diluted Net income (loss) attributable to iStar Inc. – Basic and diluted Weighted average number of HPU share – Basic and diluted 2015 2014 2013 $ 229,720 134,687 49,931 100,216 514,554 224,639 146,750 67,382 65,247 81,277 36,567 10,524 6,374 638,760 (124,206) (281) 32,153 – (92,334) (7,639) (99,973) – – 93,816 (6,157) 3,722 (2,435) (51,320) 1,080 $ (52,675) $ $ (0.62) (0.62) 84,987 $ (120.00) $ (120.00) 9 $ 243,100 122,704 81,033 15,191 462,028 224,483 163,389 12,840 73,571 88,287 (1,714) 34,634 6,340 601,830 (139,802) (25,369) 94,905 – (70,266) (3,912) (74,178) – – 89,943 15,765 704 16,469 (51,320) 1,129 $ (33,722) $ $ (0.40) (0.40) 85,031 $ $ (75.27) (75.27) 15 $ 234,567 108,015 48,208 – 390,790 266,225 157,441 – 71,266 92,114 5,489 12,589 8,050 613,174 (222,384) (33,190) 41,520 (7,373) (221,427) 659 (220,768) 644 22,233 86,658 (111,233) (718) (111,951) (49,020) 5,202 $ (155,769) $ $ (2.09) (1.83) 84,990 $ (396.07) $ (346.80) 15 33 Explanatory Notes: (1) Income (loss) from continuing operations attributable to iStar Inc. was $(96.3) million, $(73.5) million and $(221.5) million for the years ended December 31, 2015, 2014 and 2013, respec- tively. Refer to Note 15 for details on the calculation of earnings per share. (2) All of the Company’s outstanding High Performance Units (“HPUs”) were repurchased and retired on August 13, 2015 (refer to Note 13). (3) Participating Security holders are non- employee directors who hold common stock equivalents and restricted stock awards granted under the Company’s Long Term Incentive Plans that are eligible to participate in dividends (refer to Note 14 and Note 15). The accompanying notes are an integral part of the consolidated financial statements. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) For the Years Ended December 31, (In thousands) Net income (loss) Other comprehensive income (loss): Reclassification of (gains)/losses on available-for-sale securities into earnings upon realization(1) Reclassification of (gains)/losses on cash flow hedges into earnings upon realization(2) Realization of (gains)/losses on cumulative translation adjustment into earnings upon realization(3) Unrealized gains/(losses) on available-for-sale securities Unrealized gains/(losses) on cash flow hedges Unrealized gains/(losses) on cumulative translation adjustment Other comprehensive income (loss) Comprehensive income (loss) Comprehensive (income) loss attributable to noncontrolling interests Comprehensive income (loss) attributable to iStar Inc. 2015 2014 2013 $ (6,157) $ 15,765 $ (111,233) (2,576) 921 – (532) (1,202) (491) (3,880) (10,037) 3,722 $ (6,315) (90) 4,116 968 3,367 (5,187) 131 3,305 19,070 710 $ 19,780 (859) 310 (1,310) (302) (255) (675) (3,091) (114,324) (718) $ (115,042) Explanatory Notes: (1) For the years ended December 31, 2015 , 2014 and 2013, $2,576, $90 and $266, respectively, is included in “Other income” in the Company’s consolidated statements of operations which was reclassified out of accumulated other comprehensive income (“AOCI”). For the year ended December 31, 2013, $593 is included in “Earnings from equity method investments” in the Company’s consolidated statements of operations which was reclassified out of AOCI. (2) Included in “Interest expense” in the Company’s consolidated statements of operations are $456, $62 and $310 for the years ended December 31, 2015, 2014 and 2013, respectively, which was reclassified out of AOCI. For the year ended December 31, 2014, $3,634 is included in “Other expense” in the Company’s consolidated statements of operations (refer to Note 12) and for the years ended December 31, 2015 and 2014, $465 and $420, respectively, is included in “Earnings from equity method investments” in the Company’s consolidated statements of operations which was reclassified out of AOCI. (3) Included in “Earnings from equity method investments” in the Company’s consolidated statements of operations. The accompanying notes are an integral part of the consolidated financial statements. 34 CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY iStar Inc. Shareholders’ Equity For the Years Ended December 31, 2015, 2014 and 2013 Preferred Stock(1) Balance as of December 31, 2012 Issuance of Preferred Stock Dividends declared – preferred Repurchase of stock Issuance of stock/restricted stock unit amortization, net Net income (loss) for the period(3) Change in accumulated other comprehensive income (loss) Change in additional paid in capital attributable to redeemable noncontrolling interest(4) Contributions from noncontrolling interests(5) Distributions to noncontrolling interests(4) Balance as of December 31, 2013 Dividends declared – preferred Issuance of stock/restricted stock unit amortization, net Net income (loss) for the period(3) Change in accumulated other comprehensive income (loss) Change in additional paid in capital attributable to redeemable noncontrolling interests Contributions from noncontrolling interests Distributions to noncontrolling interests Change in noncontrolling interests(6) Balance as of December 31, 2014 Dividends declared – preferred Issuance of stock/restricted stock unit amortization, net Net income (loss) for the period(3) Change in accumulated other comprehensive income (loss) Repurchase of stock Redemption of HPUs Change in additional paid in capital attributable to noncontrolling interests(7) Contributions from noncontrolling interests Distributions to noncontrolling interests(7) Balance as of December 31, 2015 Explanatory Notes: $ 22 – – – – – – – – – $ 22 – – – – – – – – $ 22 – – – – – – – – – $ 22 Preferred Stock Series J(1) HPU’s(2) $ – $ 9,800 4 – – – – – – – – – – – – – – – – – $ 4 $ 9,800 – – – – – – – – – – – – – – – – $ 4 $ 9,800 – – – Retained Earnings (Deficit) Additional Paid-In Capital Common Stock at Par $ 84 $ 3,590,870 $ (2,360,647) – (49,020) – – (20,983) – – (2) 193,506 Accumulated Other Com- prehensive Income (Loss) Non- controlling Interests Total Equity $ (1,185) $ 74,210 $ 1,313,154 193,510 (49,020) (20,985) – – – – – – 1 – (1,376) – – (111,951) – – – (1,375) 3,837 (108,114) – – – (3,091) – (3,091) – – – – (2,772) – – – – $ 83 $ 3,759,245 $ (2,521,618) (51,320) – – – – – – 10,264 (30,106) (2,772) 10,264 (30,106) $ (4,276) $ 58,205 $ 1,301,465 (51,320) – – 2 – (13,091) – – 16,469 – – – 1,221 (13,089) 17,690 – – – 3,305 – 3,305 – – – – – (1,533) – – – – – – $ 85 $ 3,744,621 $ (2,556,469) (51,320) – – – – – – – (1,533) 565 (4,820) (3,915) $ (971) $ 51,256 $ 1,248,348 (51,320) 565 (4,820) (3,915) – – – – 4,961 – – (2,435) – – – (266) 4,961 (2,701) 35 – – (9,800) – (5) 1 – (70,411) 15,238 – – (15,250) (3,880) – – – – – (3,880) (70,416) (9,811) – – – – – – – – (5,079) – – – – $ 81 $ 3,689,330 $ (2,625,474) – – – – (5,079) 205 (8,977) $ (4,851) $ 42,218 $ 1,101,330 205 (8,977) $ 4 $ – – – – – – – – – (1) Refer to Note 13 for details on the Company’s Preferred Stock. (2) All of the Company’s outstanding HPUs were repurchased and retired on August 13, 2015 (refer to Note 13). (3) For the years ended December 31, 2015, 2014 and 2013 net income (loss) shown above excludes $(3,456), $(1,925) and $(3,119) of net loss attributable to redeemable noncontrolling interests. (4) Includes an $8.8 million payment to redeem a noncontrolling member’s interest. (5) Includes $9.4 million of operating property assets contributed by a noncontrolling partner. (6) During the year ended December 31, 2014, the Company sold its 72% interest in a previously consolidated entity to one of its unconsolidated ventures (refer to Note 4 and Note 7). (7) Includes a $6.4 million payment to redeem a noncontrolling member’s interest (refer to Note 4). The accompanying notes are an integral part of the consolidated financial statements. 36 CONSOLIDATED STATEMENTS OF CASH FLOWS For the Years Ended December 31, 2015 2014 2013 (In thousands) Cash flows from operating activities: Net income (loss) Adjustments to reconcile net income (loss) to cash flows from operating activities: Provision for (recovery of) loan losses Impairment of assets Loss on transfer of interest to unconsolidated subsidiary Depreciation and amortization Payments for withholding taxes upon vesting of stock-based compensation Non-cash expense for stock-based compensation Amortization of discounts/premiums and deferred financing costs on debt obligations, net Amortization of discounts/premiums and deferred interest on loans, net (Gain) loss from sales of loans Earnings from equity method investments Distributions from operations of other investments Deferred operating lease income Income from sales of real estate Land development revenue in excess of cost of sales Gain from discontinued operations Loss on early extinguishment of debt, net Debt discount and prepayment penalty on repayments and repurchases of debt obligations Other operating activities, net Changes in assets and liabilities: Changes in accrued interest and operating lease income receivable, net Changes in deferred expenses and other assets, net Changes in accounts payable, accrued expenses and other liabilities, net Cash flows used in operating activities Cash flows from investing activities: Originations and fundings of loans receivable, net Capital expenditures on real estate assets Capital expenditures on land and development assets Acquisitions of real estate assets Repayments of and principal collections on loans receivable and other lending investments, net Net proceeds from sales of loans receivable Net proceeds from sales of real estate Net proceeds from sales of land and development assets Net proceeds from sale of other investments Distributions from other investments Contributions to other investments Changes in restricted cash held in connection with investing activities Other investing activities, net Cash flows from investing activities Cash flows from financing activities: Borrowings from debt obligations Repayments of debt obligations Proceeds from loan participations payable Preferred dividends paid Proceeds from issuance of preferred stock Repurchase of stock Redemption of HPUs Payments for deferred financing costs Other financing activities, net Cash flows from (used in) financing activities Effect of exchange rate changes on cash Changes in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period Supplemental disclosure of cash flow information: $ (6,157) $ 15,765 $ (111,233) 36,567 10,524 – 65,247 (1,718) 12,013 17,352 (82,782) – (32,153) 29,999 (7,950) (93,816) (32,834) – 281 (578) 42,607 (2,068) 2,631 (17,112) (59,947) (478,822) (81,525) (88,219) – 273,454 6,655 362,530 81,601 – 119,854 (11,531) (7,550) 7,581 184,028 549,000 (432,383) 138,075 (51,320) – (69,511) (9,811) (2,255) (7,314) 114,481 478 239,040 472,061 $ 711,101 (1,714) 34,634 – 73,571 (21,250) 13,314 16,891 (59,747) (19,067) (94,905) 80,116 (8,492) (89,943) (2,351) – 25,369 (14,888) 31,935 (1,426) 4,601 7,245 (10,342) (622,428) (68,464) (74,323) (4,666) 512,528 65,438 404,336 15,191 – 61,031 (159,424) 29,283 1,291 159,793 1,349,822 (1,471,174) – (51,320) – – – (19,595) 1,309 (190,958) – (41,507) 513,568 $ 472,061 5,489 14,507 7,373 71,530 (14,098) 19,261 20,915 (37,383) 596 (41,520) 17,252 (12,077) (86,658) – (22,233) 19,655 (24,001) 6,917 2,310 (23,012) 5,945 (180,465) (257,600) (73,057) (36,346) (102,364) 613,615 81,614 437,817 – 220,281 36,918 (12,784) (19,388) 4,741 893,447 1,444,565 (1,984,102) – (49,020) 193,510 (20,985) – (17,539) (22,187) (455,758) – 257,224 256,344 $ 513,568 Cash paid during the period for interest, net of amount capitalized $ 207,972 $ 194,605 $ 237,457 The accompanying notes are an integral part of the consolidated financial statements. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1 – Business and Organization Business – iStar Inc. (the “Company”), doing business as “iStar,” finances, invests in and develops real estate and real estate related proj- ects as part of its fully- integrated investment platform. The Company has invested more than $35 billion over the past two decades and is structured as a real estate investment trust (“REIT”) with a diversified portfolio focused on larger assets located in major metropolitan markets. The Company’s primary business segments are real estate finance, net lease, operating properties and land and development (refer to Note 17). Organization – The Company began its business in 1993 through the management of private investment funds and became publicly traded in 1998. Since that time, the Company has grown through the origination of new investments, as well as through corporate acquisitions. equity for the years ended December 31, 2014 and 2013 have been revised accordingly. In addition, the Company will revise the consolidated state- ments of changes in equity for the periods ended March 31, 2015, June 30, 2015, and September 30, 2015, as those financial statements are presented in future filings. The misclassification eliminates treasury stock and results in cor- responding reductions of common stock and additional paid-in capital, which results in no change in total equity within the consolidated balance sheets and consolidated statements of changes in equity. All repurchased shares previously reported as treasury stock will now be reported as unis- sued common stock. The change has no impact on the previously reported consolidated statements of operations, consolidated statements of compre- hensive income or consolidated statements of cash flows. The impact of the change is as follows: As Reported Change As Adjusted(1) Note 2 – Basis of Presentation and Principles of Consolidation Basis of Presentation – The accompanying audited consolidated financial statements have been prepared in conformity with generally accepted accounting principles in the United States of America (“GAAP”) for complete financial statements. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Certain prior year amounts have been reclassified in the Company’s consoli- dated financial statements and the related notes to conform to the current period presentation. During the year ended December 31, 2015, the Company changed its presentation of land and development assets. Land and development assets were previously included in “Real estate, net” and “Real estate avail- able and held for sale” on the consolidated balance sheets. Land and development assets are now included in “Land and development” on the consolidated balance sheets. Prior period amounts have been reclassified to conform to the current period presentation. During the year ended December 31, 2015, the Company deter- mined that its classification of common shares repurchased under its share repurchase programs should be classified as a reduction to common stock for the par amount of the common stock repurchased and additional paid in capital and included as shares unissued within the consolidated financial statements. The Company previously classified common shares repurchased under its share repurchase programs as treasury stock. The Company evalu- ated the impact of this correction on previously issued financial statements and concluded they were not materially misstated. In order to conform pre- vious financial statements with the current period, the Company elected to revise previously issued financial statements the next time such finan- cial statements are filed. The accompanying consolidated balance sheet as of December 31, 2014 and the consolidated statements of changes in (in thousands) September 30, 2015 Additional paid-in capital Common stock Treasury stock, at cost Total June 30, 2015 Additional paid-in capital Common stock Treasury stock, at cost Total March 31, 2015 Additional paid-in capital Common stock Treasury stock, at cost Total December 31, 2014(2) Additional paid-in capital Common stock Treasury stock, at cost Total December 31, 2013 Additional paid-in capital Common stock Treasury stock, at cost Total $ 4,023,962 $ (283,193) $ 3,740,769 84 – 3,740,853 147 (283,256) 3,740,853 (63) 283,256 – 37 4,007,937 146 (263,515) 3,744,568 (263,454) (61) 263,515 – 3,744,483 85 – 3,744,568 4,007,540 146 (263,512) 3,744,174 (263,451) (61) 263,512 – 3,744,089 85 – 3,744,174 4,007,514 146 (262,954) 3,744,706 (262,893) (61) 262,954 – 3,744,621 85 – 3,744,706 4,022,138 144 (262,954) 3,759,328 (262,893) (61) 262,954 – 3,759,245 83 – 3,759,328 Explanatory Notes: (1) Common shares repurchased during the respective periods will also be reclassified on the consolidated statements of changes in equity from treasury stock, at cost to common stock and additional paid-in capital in future filings. (2) As of December 31, 2014, the number of common shares issued and outstanding was 85,191. Principles of Consolidation – The consolidated financial state- ments include the financial statements of the Company, its wholly owned subsidiaries, controlled partnerships and variable interest entities (“VIEs”) for which the Company is the primary beneficiary. All significant intercompany 38 balances and transactions have been eliminated in consolidation. The Company’s involvement with VIEs affects its financial performance and cash flows primarily through amounts recorded in “Operating lease income,” “Earnings from equity method investments,” “Real estate expense” and “Interest expense” in the Company’s consolidated statements of operations. The Company has not provided financial support to those VIEs that it was not previously contractually required to provide. Consolidated VIEs – As of December 31, 2015, the Company consolidates VIEs for which it is considered the primary beneficiary. As of December 31, 2015, the total assets of these consolidated VIEs were $219.3 mil- lion and total liabilities were $26.5 million. The classifications of these assets are primarily within “Land and development” and “Other investments” on the Company’s consolidated balance sheets. The classifications of liabilities are primarily within “Accounts payable, accrued expenses and other liabilities” on the Company’s consolidated balance sheets. The liabilities of these VIEs are non- recourse to the Company and can only be satisfied from each VIE’s respective assets. The Company’s total unfunded commitments related to consolidated VIEs was $38.8 million as of December 31, 2015. Unconsolidated VIEs – As of December 31, 2015, the Company has investments in VIEs where it is not the primary beneficiary, and accordingly, the VIEs have not been consolidated in the Company’s consolidated finan- cial statements. As of December 31, 2015, the Company’s maximum exposure to loss from these investments does not exceed the sum of the $93.4 million carrying value of the investments, which are classified in “Other investments” on the Company’s consolidated balance sheets, and $17.7 million of related unfunded commitments. Note 3 – Summary of Significant Accounting Policies Real estate and land and development – Real estate and land and development assets are recorded at cost less accumulated deprecia- tion and amortization, as follows: Capitalization and depreciation – Certain improvements and replacements are capitalized when they extend the useful life of the asset. For real estate projects, the Company begins to capitalize qualified development and construction costs, including interest, real estate taxes, compensation and certain other carrying costs incurred which are specifi- cally identifiable to a development project once activities necessary to get the asset ready for its intended use have commenced. If specific allocation of costs is not practicable, the Company will allocate costs based on relative fair value prior to construction or relative sales value, relative size or other value methods as appropriate during construction. The Company ceases capitalization on the portions substantially completed and ready for their intended use. Repairs and maintenance costs are expensed as incurred. Depreciation is computed using the straight-line method of cost recovery over the estimated useful life, which is generally 40 years for facilities, five years for furniture and equipment, the shorter of the remaining lease term or expected life for tenant improvements and the remaining useful life of the facility for facility improvements. Purchase price allocation – Upon acquisition of real estate, the Company determines whether the transaction is a business combination, which is accounted for under the acquisition method, or an acquisition of assets. For both types of transactions, the Company recognizes and mea- sures identifiable assets acquired, liabilities assumed and any noncontrolling interest in the acquiree based on their relative fair values. For business com- binations, the Company recognizes and measures goodwill or gain from a bargain purchase, if applicable, and expenses acquisition- related costs in the periods in which the costs are incurred and the services are received. For acquisitions of assets, acquisition- related costs are capitalized and recorded in “Real estate, net” on the Company’s consolidated balance sheets. The Company accounts for its acquisition of properties by recording the purchase price of tangible and intangible assets and liabilities acquired based on their estimated fair values. The value of the tangible assets, con- sisting of land, buildings, building improvements and tenant improvements is determined as if these assets are vacant. Intangible assets may include the value of lease incentive assets, above- market leases, in-place leases and the value of customer relationships, which are each recorded at their esti- mated fair values and included in “Deferred expenses and other assets, net” on the Company’s consolidated balance sheets. Intangible liabilities may include the value of below- market leases, which are recorded at their esti- mated fair values and included in “Accounts payable, accrued expenses and other liabilities” on the Company’s consolidated balance sheets. In-place leases and customer relationships are amortized over the remaining non- cancelable term and the amortization expense is included in “Depreciation and amortization” in the Company’s consolidated statements of operations. Lease incentive assets and above- market (or below- market) lease value is amortized as a reduction of (or, increase to) operating lease income over the remaining non- cancelable term of each lease plus any renewal periods with fixed rental terms that are considered to be below- market. The Company also engages in sale/leaseback transactions and typically executes leases with the occupant simultaneously with the purchase of the net lease asset. Impairments – The Company reviews real estate assets to be held and used and land and development assets, for impairment in value when- ever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. The value of a long-lived asset held for use is impaired only if management’s estimate of the aggregate future cash flows (undiscounted and without interest charges) to be generated by the asset (taking into account the anticipated holding period of the asset) is less than the carrying value. Such estimate of cash flows considers factors such as expected future operating income trends, as well as the effects of demand, competition and other economic factors. To the extent impairment has occurred, the loss will be measured as the excess of the carrying amount of the property over the estimated fair value of the asset and reflected as an adjustment to the basis of the asset. Impairments of real estate assets that are not held for sale and land and development assets are recorded in “Impairment of assets” in the Company’s consolidated statements of opera- tions. Impairments of real estate assets that are disposed of or classified as held for sale after December 31, 2013 and which do not represent a strategic shift that has (or will have) a major effect on the Company’s operations and financial results are also recorded in “Impairment of assets” in the Company’s consolidated statements of operations. Real estate available and held for sale – The Company reports real estate assets to be sold at the lower of their carrying amount or estimated fair value less costs to sell and classifies them as “Real estate available and held for sale” on the Company’s consolidated balance sheets. If the estimated fair value less costs to sell is less than the carrying value, the difference will be recorded as an impairment charge. Impairment for real estate assets sold or classified as held for sale on or before December 31, 2013 are included in “Income (loss) from discontinued operations” in the Company’s consolidated statements of operations. Impairment for real estate assets disposed of or classified as held for sale after December 31, 2013 are included in “Impairment of assets” in the Company’s consolidated statements of operations. Once a real estate asset is classified as held for sale, depreciation expense is no longer recorded and historical operating results, including impairments, are reclassified to “Income (loss) from discon- tinued operations” in the Company’s consolidated statements of operations. If circumstances arise that were previously considered unlikely and, as a result the Company decides not to sell a property previously classified as held for sale, the property is reclassified as held and used and included in “Real estate, net” on the Company’s consolidated balance sheets. The Company measures and records a property that is reclassified as held and used at the lower of (i) its carrying amount before the property was clas- sified as held for sale, adjusted for any depreciation expense that would have been recognized had the property been continuously classified as held and used, or (ii) the estimated fair value at the date of the subsequent decision not to sell. Dispositions – Revenue from sales of land and gains or losses on the sale of other real estate assets, including residential property, are rec- ognized in accordance with Accounting Standards Codification (“ASC”) 360-20, Real Estate Sales. Sales of land and the associated gains on sales of residential property are recognized for full profit recognition upon closing of the sale transactions, when the profit is determinable, the earnings process is virtually complete, the parties are bound by the terms of the contract, all consideration has been exchanged, any permanent financing for which the seller is responsible has been arranged and all conditions for closing have been performed. The Company primarily uses specific identification and the relative sales value method to allocate costs. Gains on sales of net lease assets or commercial operating properties disposed of or classified as held for sale on or before December 31, 2013 are recorded in “Gains from discontinued operations” in the Company’s consolidated statements of operations. Gain on sales of net lease assets or commercial operating properties disposed of or classified as held for sale after December 31, 2013 and profits on sales of residential property within the operating property segment are included in “Income from sales of real estate” in the Company’s consolidated statements of operations. Loans receivable and other lending investments, net – Loans receivable and other lending investments, net includes the following investments: senior mortgages, corporate/partnership loans, subordinate mortgages, preferred equity investments and debt securities. Management considers nearly all of its loans to be held-for- investment, although certain investments may be classified as held-for-sale or available-for-sale. Loans receivable classified as held-for- investment and debt securi- ties classified as held-to- maturity are reported at their outstanding unpaid principal balance, and include unamortized acquisition premiums or dis- counts and unamortized deferred loan costs or fees. These loans and debt securities also include accrued and paid-in-kind interest and accrued exit fees that the Company determines are probable of being collected. Debt securities classified as available-for-sale are reported at fair value with unrealized gains and losses included in “Accumulated other comprehensive income (loss)” on the Company’s consolidated balance sheets. Loans receivable and other lending investments designated for sale are classified as held-for-sale and are carried at lower of amortized histori- cal cost or estimated fair value. The amount by which carrying value exceeds fair value is recorded as a valuation allowance. Subsequent changes in the valuation allowance are included in the determination of net income (loss) in the period in which the change occurs. For held-to- maturity and available-for-sale debt securities held in “Loans receivable and other lending investments, net,” management evaluates whether the asset is other-than- temporarily impaired when the fair market value is below carrying value. The Company considers debt securities other-than- temporarily impaired if (1) the Company has the intent to sell the security, (2) it is more likely than not that it will be required to sell the security before recovery, or (3) it does not expect to recover the entire amortized cost basis of the security. If it is determined that an other-than- temporary impairment exists, the portion related to credit losses, where the Company does not expect to recover its entire amortized cost basis, will be recognized as an “Impairment of assets” in the Company’s consolidated statements of operations. If the Company does not intend to sell the security and it is more likely than not that the entity will not be required to sell the security, but the security has suffered a credit loss, the impairment charge will be separated. The credit loss component of the impairment will be recorded as an “Impairment of assets” in the Company’s consolidated state- ments of operations, and the remainder will be recorded in “Accumulated other comprehensive income (loss)” on the Company’s consolidated bal- ance sheets. The Company acquires properties through foreclosure or by deed- in-lieu of foreclosure in full or partial satisfaction of non- performing loans. Based on the Company’s strategic plan to realize the maximum value from the collateral received, property is classified as “Land and development,” “Real estate, net” or “Real estate available and held for sale” at its estimated fair value when title to the property is obtained. Any excess of the carrying value of the loan over the estimated fair value of the property (less costs to sell for assets held for sale) is charged-off against the reserve for loan losses as of the date of foreclosure. Equity and cost method investments – Equity interests are accounted for pursuant to the equity method of accounting if the Company can significantly influence the operating and financial policies of an investee. This is generally presumed to exist when ownership interest is between 20% and 50% of a corporation, or greater than 5% of a limited partnership or certain limited liability companies. The Company’s periodic share of earnings and losses in equity method investees is included in “Earnings from equity method investments” in the consolidated statements of operations. When 39 40 the Company’s ownership position is too small to provide such influence, the cost method is used to account for the equity interest. Equity and cost method investments are included in “Other investments” on the Company’s consolidated balance sheets. To the extent that the Company contributes assets to an unconsoli- dated subsidiary, the Company’s investment in the subsidiary is recorded at the Company’s cost basis in the assets that were contributed to the uncon- solidated subsidiary. To the extent that the Company’s cost basis is different from the basis reflected at the subsidiary level, when required, the basis difference is amortized over the life of the related assets and included in the Company’s share of equity in net income (loss) of the unconsolidated sub- sidiary, as appropriate. The Company recognizes gains on the contribution of real estate to unconsolidated subsidiaries, relating solely to the outside partner’s interest, to the extent the economic substance of the transaction is a sale. The Company recognizes a loss when it contributes property to an unconsolidated subsidiary and receives a disproportionately smaller interest in the subsidiary based on a comparison of the carrying amount of the prop- erty with the cash and other consideration contributed by the other investors. The Company periodically reviews equity method investments for impairment in value whenever events or changes in circumstances indicate that the carrying amount of such investments may not be recoverable. The Company will record an impairment charge to the extent that the estimated fair value of an investment is less than its carrying value and the Company determines the impairment is other-than- temporary. Impairment charges are recorded in “Earnings from equity method investments” in the Company’s consolidated statements of operations. Cash and cash equivalents – Cash and cash equivalents include cash held in banks or invested in money market funds with original maturity terms of less than 90 days. Restricted cash – Restricted cash represents amounts required to be maintained under certain of the Company’s debt obligations, loans, leasing, land development, sale and derivative transactions. Restricted cash is included in “Deferred expenses and other assets, net” on the Company’s consolidated balance sheets. Variable interest entities – The Company evaluates its investments and other contractual arrangements to determine if they constitute variable interests in a VIE. A VIE is an entity where a controlling financial interest is achieved through means other than voting rights. A VIE is consolidated by the primary beneficiary, which is the party that has the power to direct matters that most significantly impact the activities of the VIE and has the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to the VIE. This overall consolidation assess- ment includes a review of, among other factors, which interests create or absorb variability, contractual terms, the key decision making powers, their impact on the VIE’s economic performance, and related party relationships. Where qualitative assessment is not conclusive, the Company performs a quantitative analysis. The Company reassesses its evaluation of the primary beneficiary of a VIE on an ongoing basis and assesses its evaluation of an entity as a VIE upon certain reconsideration events. The Company has investments in certain funds that meet the deferral criteria in Accounting Standards Update (“ASU”) 2010-10 and will continue to assess consolidation of these entities under the overall guidance on the consolidation of VIEs in ASC 810-10. The consolidation evaluation is similar to the process noted above, except that the primary beneficiary is the party that will receive a majority of the VIE’s anticipated losses, a majority of the VIE’s expected residual returns, or both. In addition, for entities that meet the deferral criteria, the Company reassesses its initial evaluation of the primary beneficiary and whether an entity is a VIE upon the occurrence of certain reconsideration events. Deferred expenses – Deferred expenses include leasing costs and financing fees. Leasing costs include brokerage, legal and other costs which are amortized over the life of the respective leases and presented as an operating activity in the Company’s consolidated statements of cash flows. External fees and costs incurred to obtain long-term debt financing have been deferred and are amortized over the term of the respective borrowing using the effective interest method. Amortization of leasing costs is included in “Depreciation and amortization” and amortization of deferred financing fees is included in “Interest expense” in the Company’s consolidated state- ments of operations. Identified intangible assets and liabilities – Upon the acquisition of a business, the Company records intangible assets or liabilities acquired at their estimated fair values and determines whether such intangible assets or liabilities have finite or indefinite lives. As of December 31, 2015, all such intangible assets and liabilities acquired by the Company have finite lives. Intangible assets are included in “Deferred expenses and other assets, net” and intangible liabilities are included in “Accounts payable, accrued expenses and other liabilities” on the Company’s consolidated balance sheets. The Company amortizes finite lived intangible assets and liabili- ties based on the period over which the assets are expected to contribute directly or indirectly to the future cash flows of the business acquired. The Company reviews finite lived intangible assets for impairment whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. If the Company determines the carrying value of an intangible asset is not recoverable it will record an impairment charge to the extent its carrying value exceeds its estimated fair value. Impairments of intangible assets are recorded in “Impairment of assets” in the Company’s consolidated statements of operations. Loan participations payable, net – The Company accounts for transfers of financial assets under ASC Topic 860, “Transfers and Servicing”, as either sales or secured borrowings. Transfers of financial assets that result in sales accounting are those in which (1) the transfer legally isolates the transferred assets from the transferor, (2) the transferee has the right to pledge or exchange the transferred assets and no condition both constrains the transferee’s right to pledge or exchange the assets and provides more than a trivial benefit to the transferor, and (3) the transferor does not main- tain effective control over the transferred assets. If the transfer does not meet these criteria, the transfer is presented on the balance sheet as “Loan participations payable, net”. Financial asset activities that are accounted for as sales are removed from the balance sheet with any realized gain (loss) reflected in earnings during the period of sale. Revenue recognition – The Company’s revenue recognition policies are as follows: Operating lease income: The Company’s leases have all been determined to be operating leases based on an analysis performed in accordance with ASC 840. Operating lease income is recognized on the straight-line method of accounting, generally from the later of the date the lessee takes possession of the space and it is ready for its intended use or the date of acquisition of the facility subject to existing leases. Accordingly, contractual lease payment increases are recognized evenly over the term of the lease. The periodic difference between lease revenue recognized under this method and contractual lease payment terms is recorded as “Deferred operating lease income receivable,” on the Company’s consolidated bal- ance sheets. The Company also recognizes revenue from certain tenant leases for reimbursements of all or a portion of operating expenses, including common area costs, insurance, utilities and real estate taxes of the respec- tive property. This revenue is accrued in the same periods as the expense is incurred and is recorded as “Operating lease income” in the Company’s consolidated statements of operations. Revenue is also recorded from cer- tain tenant leases that is contingent upon tenant sales exceeding defined thresholds. These rents are recognized only after the defined threshold has been met for the period. receipts reduce a loan’s carrying value. Non- accrual loans are returned to accrual status when a loan has become contractually current and manage- ment believes all amounts contractually owed will be received. Certain of the Company’s loans contractually provide for accrual of interest at specified rates that differ from current payment terms. Interest is recognized on such loans at the accrual rate subject to management’s determination that accrued interest and outstanding principal are ulti- mately collectible, based on the underlying collateral and operations of the borrower. Prepayment penalties or yield maintenance payments from bor- rowers are recognized as other income when received. Certain of the Company’s loan investments provide for additional interest based on the borrower’s operating cash flow or appreciation of the underlying collateral. Such amounts are considered contingent interest and are reflected as inter- est income only upon receipt of cash. Other income: Other income includes revenues from hotel oper- ations, which are recognized when rooms are occupied and the related services are provided. Revenues include room sales, food and beverage sales, parking, telephone, spa services and gift shop sales. Other income also includes gains from sales of loans, loan prepayment fees, lease termi- nation fees and other ancillary income. Management estimates losses within its operating lease income receivable and deferred operating lease income receivable balances as of the balance sheet date and incorporates an asset- specific component, as well as a general, formula-based reserve based on management’s evalua- tion of the credit risks associated with these receivables. As of December 31, 2015 and 2014, the allowance for doubtful accounts related to real estate tenant receivables was $1.9 million and $1.3 million, respectively, and the allowance for doubtful accounts related to deferred operating lease income was $1.5 million and $2.4 million, respectively. Land development revenue and cost of sales: Land development revenue includes lot and parcel sales from wholly-owned properties and is recognized for full profit recognition upon closing of the sale transactions, when the profit is determinable, the earnings process is virtually complete, the parties are bound by the terms of the contract, all consideration has been exchanged, any permanent financing for which the seller is responsi- ble has been arranged and all conditions for closing have been performed. The Company primarily uses specific identification and the relative sales value method to allocate costs. Interest Income: Interest income on loans receivable is recognized on an accrual basis using the interest method. On occasion, the Company may acquire loans at premiums or dis- counts. These discounts and premiums in addition to any deferred costs or fees, are typically amortized over the contractual term of the loan using the interest method. Exit fees are also recognized over the lives of the related loans as a yield adjustment, if management believes it is probable that such amounts will be received. If loans with premiums, discounts, loan origination or exit fees are prepaid, the Company immediately recognizes the unamor- tized portion, which is included in “Other income” or “Other expense” in the Company’s consolidated statements of operations. The Company considers a loan to be non- performing and places loans on non- accrual status at such time as: (1) the loan becomes 90 days delinquent; (2) the loan has a maturity default; or (3) management determines it is probable that it will be unable to collect all amounts due according to the contractual terms of the loan. While on non- accrual status, based on the Company’s judgment as to collectability of principal, loans are either accounted for on a cash basis, where interest income is recognized only upon actual receipt of cash, or on a cost- recovery basis, where all cash Reserve for loan losses – The reserve for loan losses reflects man- agement’s estimate of loan losses inherent in the loan portfolio as of the balance sheet date. If the Company determines that the collateral fair value less costs to sell is less than the carrying value of a collateral- dependent loan, the Company will record a reserve. The reserve is increased (decreased) through “Provision for (recovery of) loan losses” in the Company’s consoli- dated statements of operations and is decreased by charge-offs. During delinquency and the foreclosure process, there are typically numerous points of negotiation with the borrower as the Company works toward a settle- ment or other alternative resolution, which can impact the potential for loan repayment or receipt of collateral. The Company’s policy is to charge off a loan when it determines, based on a variety of factors, that all commercially reasonable means of recovering the loan balance have been exhausted. This may occur at different times, including when the Company receives cash or other assets in a pre- foreclosure sale or takes control of the underly- ing collateral in full satisfaction of the loan upon foreclosure or deed-in-lieu, or when the Company has otherwise ceased significant collection efforts. The Company considers circumstances such as the foregoing to be indica- tors that the final steps in the loan collection process have occurred and that a loan is uncollectible. At this point, a loss is confirmed and the loan 41 42 and related reserve will be charged off. The Company has one portfolio segment, represented by commercial real estate lending, whereby it utilizes a uniform process for determining its reserve for loan losses. The reserve for loan losses includes a general, formula-based component and an asset- specific component. The general reserve component covers performing loans and reserves for loan losses are recorded when (i) available information as of each balance sheet date indicates that it is probable a loss has occurred in the portfolio and (ii) the amount of the loss can be reasonably estimated. The formula-based general reserve is derived from estimated principal default probabilities and loss severities applied to groups of loans based upon risk ratings assigned to loans with similar risk characteristics during the Company’s quarterly loan portfolio assessment. During this assessment, the Company performs a comprehensive analysis of its loan portfolio and assigns risk ratings to loans that incorporate management’s current judg- ments about their credit quality based on all known and relevant internal and external factors that may affect collectability. The Company consid- ers, among other things, payment status, lien position, borrower financial resources and investment in collateral, collateral type, project econom- ics and geographical location as well as national and regional economic factors. This methodology results in loans being segmented by risk clas- sification into risk rating categories that are associated with estimated probabilities of default and principal loss. Ratings range from “1” to “5” with “1” representing the lowest risk of loss and “5” representing the highest risk of loss. The Company estimates loss rates based on historical realized losses experienced within its portfolio and takes into account current economic conditions affecting the commercial real estate market when establishing appropriate time frames to evaluate loss experience. The asset- specific reserve component relates to reserves for losses on impaired loans. The Company considers a loan to be impaired when, based upon current information and events, it believes that it is proba- ble that the Company will be unable to collect all amounts due under the contractual terms of the loan agreement. This assessment is made on a loan-by-loan basis each quarter based on such factors as payment status, lien position, borrower financial resources and investment in collateral, collateral type, project economics and geographical location as well as national and regional economic factors. A reserve is established for an impaired loan when the present value of payments expected to be received, observable market prices, or the estimated fair value of the collateral (for loans that are dependent on the collateral for repayment) is lower than the carrying value of that loan. Substantially all of the Company’s impaired loans are collateral dependent and impairment is measured using the estimated fair value of collateral, less costs to sell. The Company generally uses the income approach through internally developed valuation models to estimate the fair value of the collateral for such loans. In more limited cases, the Company obtains external “as is” appraisals for loan collateral, generally when third party participations exist. Valuations are performed or obtained at the time a loan is determined to be impaired and designated non- performing, and they are updated if circumstances indicate that a significant change in value has occurred. In limited cases, appraised values may be discounted when real estate markets rapidly deteriorate. A loan is also considered impaired if its terms are modified in a troubled debt restructuring (“TDR”). A TDR occurs when the Company has granted a concession and the debtor is experiencing financial difficulties. Impairments on TDR loans are generally measured based on the present value of expected future cash flows discounted at the effective interest rate of the original loan. Loss on debt extinguishments – The Company recognizes the dif- ference between the reacquisition price of debt and the net carrying amount of extinguished debt currently in earnings. Such amounts may include pre- payment penalties or the write-off of unamortized debt issuance costs, and are recorded in “Loss on early extinguishment of debt, net” in the Company’s consolidated statements of operations. Derivative instruments and hedging activity – The Company’s use of derivative financial instruments is primarily limited to the utilization of interest rate swaps, interest rate caps or other instruments to manage inter- est rate risk exposure and foreign exchange contracts to manage our risk to changes in foreign currencies. The Company recognizes derivatives as either assets or liabilities on the Company’s consolidated balance sheets at fair value. If certain con- ditions are met, a derivative may be specifically designated as a hedge of the exposure to changes in the fair value of a recognized asset or liability, a hedge of a forecasted transaction or the variability of cash flows to be received or paid related to a recognized asset or liability. For derivatives designated as net investment hedges, the effec- tive portion of changes in the fair value of the derivatives are reported in Accumulated Other Comprehensive Income as part of the cumulative trans- lation adjustment. The ineffective portion of the change in fair value of the derivatives is recognized directly in earnings. Amounts are reclassified out of Accumulated Other Comprehensive Income into earnings when the hedged net investment is either sold or substantially liquidated. Derivatives that are not designated hedges are considered eco- nomic hedges, with changes in fair value reported in current earnings in “Other expense” in the Company’s consolidated statements of operations. The Company does not enter into derivatives for trading purposes. Stock-based compensation – Compensation cost for stock-based awards is measured on the grant date and adjusted over the period of the employees’ services to reflect (i) actual forfeitures and (ii) the outcome of awards with performance or service conditions through the requisite service period. The Company recognizes compensation cost for performance-based awards if and when the Company concludes that it is probable that the performance condition will be achieved. Compensation cost for market condition-based awards is determined using a Monte Carlo model to sim- ulate a range of possible future stock prices for the Company’s common stock, which is reflected in the grant date fair value. All compensation cost for market- condition based awards in which the service conditions are met is recognized regardless of whether the market condition is satisfied. Compensation costs are recognized ratably over the applicable vesting/ser- vice period and recorded in “General and administrative” in the Company’s consolidated statements ofoperations. Income taxes – The Company has elected to be qualified and taxed as a REIT under section 856 through 860 of the Internal Revenue Code of 1986, as amended (the “Code”). The Company is subject to federal income taxation at corporate rates on its REIT taxable income; the Company, however, is allowed a deduction for the amount of dividends paid to its shareholders, thereby subjecting the distributed net income of the Company to taxation at the shareholder level only. While the Company must distribute at least 90% of its taxable income to maintain its REIT status, the Company typically distributes all of its taxable income, if any, to eliminate any tax on undistributed taxable income. In addition, the Company is allowed several other deductions in computing its REIT taxable income, including non-cash items such as depreciation expense and certain specific reserve amounts that the Company deems to be uncollectable. These deductions allow the Company to reduce its dividend payout requirement under federal tax laws. The Company intends to operate in a manner consistent with, and its election to be treated as, a REIT for tax purposes. The Company made foreclosure elections for certain properties acquired through foreclosure, or an equivalent legal process, which allows the Company to operate these properties within the REIT, but subjects net income from these assets to cor- porate level tax. The carrying value of assets with foreclosure elections as of December 31, 2015 is $749.2 million. As of December 31, 2014, the Company had $856 million of REIT net operating loss (“NOL”) carryforwards at the corporate REIT level, which can generally be used to offset both ordinary and capital taxable income in future years and will expire through 2034 if unused. The amount of NOL carryforwards as of December 31, 2015 will be subject to finalization of the Company’s 2015 tax return. During the year ended December 31, 2015, the Company did not have REIT taxable income. The Company recognizes interest expense and penalties related to uncertain tax positions, if any, as “Income tax (expense) benefit” in the Company’s consolidated statements ofoperations. The Company may participate in certain activities from which it would be otherwise precluded and maintain its qualification as a REIT. These activities are conducted in entities that elect to be treated as tax- able subsidiaries under the Code, subject to certain limitations. As such, the Company, through its taxable REIT subsidiaries (“TRS”), is engaged in various real estate related opportunities, primarily related to managing activities related to certain foreclosed assets, as well as managing various investments in equity affiliates. As of December 31, 2015, $516.9 million of the Company’s assets were owned by TRS entities. The Company’s TRS enti- ties are not consolidated for federal income tax purposes and are taxed as corporations. For financial reporting purposes, current and deferred taxes are provided for on the portion of earnings recognized by the Company with respect to its interest in TRSentities. The following represents the Company’s TRS income tax (expense) benefit ($ inthousands): For the Years Ended December 31, Current tax (expense) benefit Deferred tax (expense) benefit Total income tax (expense) benefit 2015 2014 $ (7,639) $ (3,912) – – $ (7,639) $ (3,912) 2013 $ 659 – $ 659 During the year ended December 31, 2015, the Company’s TRS enti- ties generated taxable income of $17.0 million, which was partially offset by the utilization of NOL carryforwards, resulting in a current tax expense of $7.6 million. During the year ended December 31, 2014, the Company’s TRS entities generated taxable income of $19.3 million, which was partially offset by the utilization of NOL carryforwards, resulting in current tax expense of $3.9 million. During the year ended December 31, 2013, the Company’s TRS entities generated a taxable loss of $1.8 million, resulting in a current tax benefit of $0.7 million. Total cash paid for taxes for the years ended December 31, 2015, 2014 and 2013 was $8.4 million, $1.3 million and $9.2 million,respectively. Deferred income taxes reflect the net tax effects of temporary dif- ferences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts for income tax purposes, as well as operating loss and tax credit carryforwards. The Company evaluates the realizability of its deferred tax assets and recognizes a valuation allowance if, based on the available evidence, both positive and negative, it is more likely than not that some portion or all of its deferred tax assets will not be realized. When evaluating the realizability of its deferred tax assets, the Company considers, among other matters, estimates of expected future tax- able income, nature of current and cumulative losses, existing and projected book/tax differences, tax planning strategies available, and the general and industry specific economic outlook. This realizability analysis is inher- ently subjective, as it requires the Company to forecast its business and general economic environment in future periods. Based on an assessment of all factors, including historical losses and continued volatility of the activi- ties within the TRS entities, it was determined that full valuation allowances were required on the net deferred tax assets as of December 31, 2015 and 2014, respectively. Changes in estimates of deferred tax asset realizability, if any, are included in “Income tax (expense) benefit” in the consolidated statements ofoperations. Deferred tax assets and liabilities of the Company’s TRS entities were as follows ($ inthousands): 43 As of December 31, Deferred tax assets(1) Valuation allowance Net deferred tax assets (liabilities) 2015 2014 $ 53,910 $ 54,318 (54,318) – (53,910) $ $ – Explanatory Note: (1) Deferred tax assets as of December 31, 2015 include timing differences related primar- ily to asset basis of $40.0 million, deferred expenses and other items of $10.7 million and NOL carryforwards of $3.2 million. Deferred tax assets as of December 31, 2014 include timing differences related primarily to asset basis of $45.2 million, deferred expenses and other items of $5.0 million and NOL carryforwards of $4.1 million. Earnings per share – The Company uses the two-class method in calculating earnings per share (“EPS”) when it issues securities other than common stock that contractually entitle the holder to participate in divi- dends and earnings of the Company when, and if, the Company declares dividends on its common stock. Vested HPU shares were entitled to divi- dends of the Company when dividends are declared. Basic earnings per 44 share (“Basic EPS”) for the Company’s common stock and HPU shares are computed by dividing net income allocable to common shareholders and HPU holders by the weighted average number of shares of common stock and HPU shares outstanding for the period, respectively. Diluted earn- ings per share (“Diluted EPS”) is calculated similarly, however, it reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock, where such exercise or conversion would result in a lower earnings per share amount. Unvested share-based payment awards that contain non- forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are deemed a “Participating Security” and are included in the computation of earnings per share pursuant to the two-class method. The Company’s unvested common stock equivalents and restricted stock awards granted under its Long-Term Incentive Plans that are eligible to participate in dividends are considered Participating Securities and have been included in the two-class method when calculating EPS. New accounting pronouncements – In September 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2015-16, Simplifying the Accounting for Measurement- Period Adjustments (“ASU 2015-16”) which requires that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjust- ments are determined. The amendments in ASU 2015-16 require that the acquirer record, in the same period’s financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. The amendments in ASU 2015-16 also require an entity to present separately on the face of the income statement or disclose in the notes the portion of the amount recorded in current- period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. The guidance is effective for interim and annual reporting periods beginning after December 15, 2015. Early adoption is permitted for financial statements that have not been issued. Management does not believe the guidance will have a material impact on the Company’s consolidated financial statements. In April 2015, the FASB issued ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs (“ASU 2015-03”) which requires debt issuance costs to be presented as a deduction from the carrying value of the related debt obligation in the balance sheet, which is consistent with the presentation of debt discounts. In August 2015, the FASB issued ASU 2015-15, Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of- Credit Arrangements, which clarified that ASU 2015-03 does not address issuance costs associated with revolving-debt arrangements and that it would be acceptable for an entity deferring such costs to present such costs as an asset and subsequently amortize the costs ratably over the term of the revolving debt arrangement. The guid- ance is effective for interim and annual reporting periods beginning after December 15, 2015. Early adoption is permitted. Management does not believe the guidance will have a material impact on the Company’s con- solidated financial statements. In February 2015, the FASB issued ASU 2015-02, Amendments to the Consolidation Analysis (“ASU 2015-02”) which updates the consolida- tion model for limited partnerships and similar legal entities. ASU 2015-02 includes the evaluation of fees paid to a decision maker as a variable inter- est and amends the effect of fee arrangements and related parties on the primary beneficiary determination. The guidance is effective for interim and annual reporting periods beginning after December 15, 2015. Early adoption is permitted. Management does not believe the guidance will have a mate- rial impact on the Company’s consolidated financial statements. In November 2014, the FASB issued ASU 2014-16, Determining Whether the Host Contract in a Hybrid Financial Instrument Issued in the Form of a Share is More Akin to Debt or to Equity (“ASU 2014-16”) which eliminates the diversity in practice for the accounting for hybrid financial instruments issued in the form of a share. ASU 2014-16 requires manage- ment to consider all terms and features, whether stated or implied, of a hybrid instrument when determining whether the nature of the instrument is more akin to a debt instrument or an equity instrument. Embedded deriv- ative features, which are accounted for separately from host contracts, should also be considered in the analysis of the hybrid instrument. ASU 2014-16 is effective for interim and annual reporting periods beginning after December 15, 2015. Early adoption is permitted. Management does not believe the guidance will have a material impact on the Company’s con- solidated financial statements. In August 2014, the FASB issued ASU 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (“ASU 2014-15”) which requires management to evaluate whether there is sub- stantial doubt that the Company is able to continue operating as a going concern within one year after the date the financial statements are issued or available to be issued. If there is substantial doubt, additional disclosure is required, including the principal condition or event that raised the sub- stantial doubt, the Company’s evaluation of the condition or event in relation to its ability to meet its obligations and the Company’s plan to alleviate (or, which is intended to alleviate) the substantial doubt. ASU 2014-15 is effective for interim and annual reporting periods beginning after December 15, 2016. Early adoption is permitted. Management does not believe the guidance will have a material impact on the Company’s consolidated financial statements. In June 2014, the FASB issued ASU 2014-12, Accounting for Share- Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period (“ASU 2014-12”) which requires a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance con- dition in accordance with Topic 718, Compensation – Stock Compensation. ASU 2014-12 is effective for interim and annual reporting periods beginning after December 15, 2015. Early adoption is permitted. Management does not believe the guidance will have a material impact on the Company’s consolidated financial statements. In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”) which supersedes existing industry- specific guidance, including ASC 360-20, Real Estate Sales. The new standard is principles-based and requires more estimates and judgment than current guidance. Certain contracts with customers, including lease contracts and financial instruments and other contractual rights, are not within the scope of the new guidance. In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers – Deferral of the Effective Date, to defer the effective date of ASU 2014-09 by one year. ASU 2014-09 is now effec- tive for interim and annual reporting periods beginning after December 15, 2017. Early adoption is permitted beginning January 1, 2017. Management is evaluating the impact of the guidance on the Company’s consolidated financial statements. Note 4 – Real Estate The Company’s real estate assets were comprised of the following ($ in thousands): As of December 31, 2015 Land and land improvements, at cost Buildings and improvements, at cost Less: accumulated depreciation Real estate, net Real estate available and held for sale(1) Total real estate As of December 31, 2014 Land and land improvements, at cost Buildings and improvements, at cost Less: accumulated depreciation Real estate, net Real estate available and held for sale(1) Total real estate Net Lease Operating Properties Total $ 306,172 $ 133,275 $ 439,447 427,371 1,611,094 1,183,723 (79,142) (456,558) (377,416) 481,504 1,593,983 1,112,479 137,274 137,274 – $ 1,112,479 $ 618,778 $ 1,731,257 $ 311,890 $ 146,417 $ 458,307 578,013 1,818,606 1,240,593 (96,159) (460,482) (364,323) 628,271 1,816,431 1,188,160 162,782 167,303 4,521 $ 1,192,681 $ 791,053 $ 1,983,734 Explanatory Note: (1) As of December 31, 2015 and 2014 the Company had $137.3 million and $155.8 mil- lion, respectively, of residential properties available for sale in its operating properties portfolio. Real Estate Available and Held for Sale – During the year ended December 31, 2015, the Company transferred net lease assets with a car- rying value of $8.2 million to held for sale due to executed contracts with third parties. During the year ended December 31, 2015, the Company trans- ferred a commercial operating property held for sale with a carrying value of $2.9 million to held for investment due to a change in business strategy. During the year ended December 31, 2014, the Company trans- ferred units with a carrying value of $56.7 million to held for sale due to the conversion of hotel rooms to residential units to be sold. The Company also transferred net lease assets with a carrying value of $4.0 million to held for sale due to executed contracts with third parties. Acquisitions – The following acquisitions of real estate were reflected in the Company’s consolidated statements of cash flows for the years ended December 31, 2015, 2014 and 2013 ($ in thousands): For the Years Ended December 31, Acquisitions of real estate assets 2015 $ – 2014(1) 2013(2) $4,666 $102,364 Explanatory Notes: (1) During the year ended December 31, 2014, the Company purchased two condominium units for $3.0 million and one land parcel for $1.7 million. (2) During the year ended December 31, 2013, the Company acquired a net lease asset for a purchase price of $93.6 million, including intangible assets of $36.1 million, intan- gible liabilities of $11.9 million and acquisition- related costs of $0.2 million, which was leased back to the seller. The Company concluded that the transaction was a real estate asset acquisition and capitalized the acquisition- related costs. The intangible assets were included in “Deferred expenses and other assets, net” and the intangible liabilities were included in “Accounts payable, accrued expenses and other liabili- ties” on the Company’s consolidated balance sheets. The lease was classified as an operating lease. During the year ended December 31, 2014, the net lease asset was sold to the Net Lease Venture for net proceeds of $93.7 million, which approximated carrying value. During the year ended December 31, 2015, the Company acquired, via deed-in-lieu, title to a residential property, which had a total fair value of $13.4 million and previously served as collateral for loans receivable held by the Company. No gain or loss was recorded in connection with this transaction. During the year ended December 31, 2014, the Company acquired, via deed-in-lieu, title to three commercial operating properties which had a total fair value of $72.4 million and previously served as collateral for loans receivable held by the Company. No gain or loss was recorded in connec- tion with these transactions. The following unaudited table summarizes the Company’s pro forma revenues and net income for the years ended December 31, 2014 and 2013, as if the acquisition of the properties acquired during the year ended December 31, 2014 was completed on January 1, 2013 ($ in thousands): For the Years Ended December 31, 2014 2013 Pro forma total revenues $466,327 $ 399,885 (unaudited) Pro forma net income (loss) 15,351 (112,355) (as revised) From the date of acquisition in May 2014 through December 31, 2014, $8.3 million in total revenues and $2.9 million in net loss of the acquiree are included in the Company’s consolidated statements of operations. The pro forma revenues and net income are presented for informational purposes only and may not be indicative of what the actual results of operations of the Company would have been assuming the transaction occurred on January 1, 2013, nor do they purport to represent the Company’s results of operations for future periods. 45 During the year ended December 31, 2014, the Company sold its 72% interest in a previously consolidated entity, which owned a net lease asset subject to a non- recourse mortgage of $26.0 million at the time of sale, to the Net Lease Venture for net proceeds of $10.1 million that approximated carrying value. Additionally, during the year ended December 31, 2013, the Company sold five net lease assets with a carrying value of $18.7 million resulting in a net gain of $2.2 million. During the same period, the Company sold six commercial operating properties with a carrying value of $72.6 mil- lion resulting in a net gain of $18.6 million. These gains were recorded as “Gain from discontinued operations” in the Company’s consolidated state- ments of operations. The Company also sold residential lots with a carrying value of $18.9 million for proceeds that approximated carrying value and sold other land assets with a carrying value of $14.8 million resulting in a gain of $0.6 million. During the year ended December 31, 2013, the Company sold land for net proceeds of $21.4 million to a newly formed entity in which the Company also received a preferred partnership interest and a 47.5% equity interest. The Company recognized a gain of $3.4 million, reflecting the pro- portionate share of the sold interest, which was recorded as “Income from sales of real estate” in the Company’s consolidated statements of operations. Discontinued Operations – The Company has elected to early adopt ASU 2014-08 beginning with disposals and classifications of assets as held for sale that occurred after December 31, 2013. During the years ended December 31, 2015 and 2014, there were no disposals or assets classified as held for sale which were individually significant or represented a strategic shift that has (or will have) a major effect on the Company’s operations and financial results. The following table summarizes income (loss) from discontinued operations for the year ended December 31, 2013 ($ in thousands): Revenues Total expenses Impairment of assets Income (loss) from discontinued operations $ 5,545 (3,138) (1,763) $ 644 During the year ended December 31, 2013, the Company acquired, via foreclosure, title to a residential operating property which previ- ously served as collateral for loans receivable held by the Company. The Company contributed the residential operating property, which had a fair value of $25.5 million, to an entity of which it owns 63%. Based on the con- trol provisions in the partnership agreement, the Company consolidates the entity and reflects its partner’s 37% share of equity in “Noncontrolling interests” on the Company’s consolidated balance sheets. The acquisition was accounted for at fair value. No gain or loss was recorded in connection with this transaction. Dispositions – During the years ended December 31, 2015, 2014 and 2013, the Company sold residential condominiums for total net pro- ceeds of $127.9 million, $236.2 million and $269.7 million, respectively, and recorded income from sales of real estate totaling $40.1 million, $79.1 million and $82.6 million, respectively. During the year ended December 31, 2015, the Company sold net lease assets with a carrying value of $60.8 million resulting in a net gain of $40.1 million. During the year ended December 31, 2015, the Company sold a commercial operating property for $68.5 million to a newly formed unconsolidated entity in which the Company owns a 50.0% equity interest (refer to Note 7). The Company recognized a gain on sale of $13.6 million, reflecting the Company’s share of the interest sold, which was recorded as “Income from sales of real estate” in the Company’s consolidated statements of operations. During the year ended December 31, 2015, the Company, through a consolidated entity, sold a leasehold interest in a commercial operating property for net proceeds of $93.5 million and simultaneously entered into a ground lease with an initial term of 99 years. In connection with this transac- tion, the Company recorded a lease incentive asset of $38.1 million, which is included in “Deferred expenses and other assets, net” on the Company’s consolidated balance sheets, and deferred a gain of $5.3 million, which is included in “Accounts payable, accrued expenses and other liabilities” on the Company’s consolidated balance sheets. In December 2015, the Company acquired the noncontrolling interest in the entity for $6.4 million. During the year ended December 31, 2015, the Company sold three commercial operating properties with an aggregate carrying value of $5.3 million for net proceeds that approximated carrying value. During the year ended December 31, 2014, the Company sold net lease assets with a carrying value of $8.0 million resulting in a gain of $6.2 million. The Company also sold a commercial operating property with a carrying value of $29.4 million resulting in a gain of $4.6 million. These gains were recorded as “Income from sales of real estate” in the Company’s consolidated statements of operations. Additionally, during the same period, the Company sold a net lease asset for net proceeds of $7.8 million. The Company recorded an impairment loss of $3.0 million in connection with the sale. 46 Impairments – During the year ended December 31, 2015, 2014 and 2013, the Company recorded impairments on real estate assets total- ing $5.9 million, $11.8 million and $13.6 million, respectively. The impairments recorded in 2015 resulted from a change in business strategy for two com- mercial operating properties and unfavorable local market conditions for one residential property. The impairments recorded in 2014 resulted from changes in business strategy for a residential property, unfavorable local market conditions for two real estate properties and from the sale of net lease assets. The impairments recorded in 2013 resulted from changes in local market conditions and business strategy for certain assets. For the year ended December 31, 2013, $1.8 million has been recorded in “Income (loss) from discontinued operations” in the Company’s consolidated statements of operations due to the assets being sold as of December 31, 2013 (see above). Tenant Reimbursements – The Company receives reimbursements from tenants for certain facility operating expenses including common area costs, insurance, utilities and real estate taxes. Tenant expense reimburse- ments were $26.8 million, $30.0 million and $31.8 million for the years ended December 31, 2015, 2014 and 2013, respectively. These amounts are included in “Operating lease income” in the Company’s consolidated statements of operations. Redeemable Noncontrolling Interest – As of December 31, 2015 and December 31, 2014, the Company had a redeemable noncontrolling interest of $7.2 million and $9.9 million, respectively, which is not currently redeemable, for which the Company records changes in the fair value over the redemption periods. As of December 31, 2015 and December 31, 2014, this interest had an estimated redemption value of $9.2 million and $23.6 mil- lion, respectively. Allowance for Doubtful Accounts – As of December 31, 2015 and December 31, 2014, the allowance for doubtful accounts related to real estate tenant receivables was $1.9 million and $1.3 million, respectively, and the allowance for doubtful accounts related to deferred operating lease income was $1.5 million and $2.4 million, respectively. These amounts are included in “Accrued interest and operating lease income receivable, net” and “Deferred operating lease income receivable, net”, respectively, on the Company’s consolidated balance sheets. Future Minimum Operating Lease Payments – Future minimum operating lease payments to be collected under non- cancelable leases, excluding customer reimbursements of expenses, in effect as of December 31, 2015, are as follows ($ in thousands): Year 2016 2017 2018 2019 2020 Net Lease Assets $121,168 117,110 115,158 113,969 112,483 Operating Properties $46,438 46,358 42,010 37,990 34,281 Note 5 – Land and Development The Company’s land and development assets were comprised of the following ($ in thousands): As of December 31, Land and land improvements, at cost Less: accumulated depreciation Total land and development 2015 $ 1,007,995 (6,032) 1,001,963 2014 $ 987,329 (8,367) 978,962 Acquisitions – During the year ended December 31, 2014, the Company acquired, via deed-in-lieu, title to a land asset that previously served as collateral for loans receivable. The fair value of the land asset was $5.5 million. During the year ended December 31, 2013, the Company acquired, via foreclosure, title to two land properties, which previously served as col- lateral for loans receivable held by the Company. The total fair value of the land properties was $15.6 million. Dispositions – For the years ended December 31, 2015 and 2014, the Company sold residential lots and parcels and recognized land develop- ment revenue of $100.2 million and $15.2 million, respectively, from its land and development portfolio. For the years ended December 31, 2015 and 2014, the Company recognized land development cost of sales of $67.4 mil- lion and $12.8 million, respectively, from its land and development portfolio. During 2015, the Company sold a land and development asset and recorded $36.9 million in land development revenue in the Company’s consolidated statements of operations. In connection with the sale, the Company recorded a receivable for additional proceeds that it will receive from the buyer subject to the Company’s completion of certain easement agreements resulting in deferred net revenue of $6.0 million. The receivable is included in “Deferred expenses and other assets, net” and the deferred revenue is included in “Accounts payable, accrued expenses and other liabilities” on the Company’s consolidated balance sheets. During 2015, the Company sold a land and development asset and recorded $25.9 million in land development revenue in the Company’s consolidated statements of operations. In addition, the Company provided financing to the buyer in the form of a loan with a fair value of $16.7 million. The loan is included in “Loans receivable and other lending investments, net” on the Company’s consolidated balance sheets. During 2015, the Company transferred a land asset to a purchaser at a stated price of $16.1 million, as part of an agreement to construct an amphitheater, for which the Company received proceeds of $5.3 million, with the remainder to be received upon completion of the development project. Due to the Company’s continuing involvement in the project, no sale was recognized and the proceeds were recorded in “Accounts payable, accrued expenses and other liabilities” on the Company’s consolidated bal- ance sheets (refer to Note 8). 47 During the year ended December 31, 2014, the Company also sold land and development assets with a carrying value of $6.8 million for proceeds that approximated carrying value. During the same period, the Company contributed land with a carrying value of $9.5 million to a newly formed unconsolidated entity (refer to Note 7). During the year ended December 31, 2013, the Company contributed land with carrying value of $24.1 million to a newly formed unconsolidated entity in which the Company received an equity interest of 75.6%. As a result of the transfer, the Company recognized a $7.4 million loss, which was recorded as “Loss on transfer of interest to unconsolidated subsidiary” on the Company’s consolidated statements of operations. Impairments – During the years ended December 31, 2015, 2014 and 2013, the Company recorded impairments on land and development assets of $4.6 million, $22.8 million and $0.7 million, respectively. Note 6 – Loans Receivable and Other Lending Investments, net The following is a summary of the Company’s loans receivable and other lending investments by class ($ in thousands): As of December 31, Type of Investment Senior mortgages Corporate/Partnership loans Subordinate mortgages Total gross carrying value of loans Reserves for loan losses Total loans receivable, net Other lending investments – securities Total loans receivable and other lending investments, net(1) 2015 2014 $ 975,915 $ 737,535 497,796 643,270 53,331 28,676 1,288,662 1,647,861 (98,490) (108,165) 1,190,172 1,539,696 187,671 62,289 $ 1,601,985 $ 1,377,843 Explanatory Note: (1) The Company’s recorded investment in loans as of December 31, 2015 and 2014 includes accrued interest of $9.0 million and $7.0 million, respectively, which are included in “Accrued interest and operating lease income receivable, net” on the Company’s con- solidated balance sheets. In June 2015, the Company received a loan with a fair value of $146.7 million as a non-cash paydown on an existing $196.6 million loan and reduced the principal balance by the same amount. The loan received has been recorded as a loan receivable and is included in “Loans receiv- able and other lending investments, net” on the Company’s consolidated balance sheet. In connection with the transaction, the Company recorded a provision for loan losses of $25.9 million on the original loan resulting in a remaining balance of $24.0 million. In October 2015, the Company received full payment of the remaining balance. 48 During the year ended December 31, 2015, the Company sold a loan with a carrying value of $5.5 million. No gain was recorded on the sale. During the years ended December 31, 2014 and 2013, the Company sold loans with aggregate carrying values of $30.8 million and $95.1 million, respectively, which resulted in gains (losses) of $19.1 million and $(0.6) mil- lion, respectively. Gains and losses on sales of loans are included in “Other income” in the Company’s consolidated statements of operations. Reserve for Loan Losses – Changes in the Company’s reserve for loan losses were as follows ($ in thousands): For the Years Ended December 31, 2015 2014 2013 Reserve for loan losses at beginning of period Provision for (recovery of) loan losses(1) Charge-offs Reserve for loan losses at end of period $ 98,490 $ 377,204 $ 524,499 36,567 5,489 (26,892) (277,000) (152,784) $ 108,165 $ 98,490 $ 377,204 (1,714) Explanatory Note: (1) For the years ended December 31, 2015, 2014 and 2013, the provision for loan losses includes recoveries of previously recorded loan loss reserves of $0.6 million, $10.1 mil- lion and $63.1 million, respectively. The Company’s recorded investment in loans (comprised of a loan’s carrying value plus accrued interest) and the associated reserve for loan losses were as follows ($ in thousands): Individually Evaluated for Impairment(1) Collectively Evaluated for Impairment(2) Total As of December 31, 2015 Loans Less: Reserve for loan losses Total As of December 31, 2014 Loans Less: Reserve for loan losses Total Explanatory Notes: $ 132,492 $ 1,524,347 $ 1,656,839 (108,165) $ 60,327 $ 1,488,347 $ 1,548,674 (72,165) (36,000) $ 139,672 $ 1,156,031 $ 1,295,703 (98,490) $ 74,682 $ 1,122,531 $ 1,197,213 (64,990) (33,500) (1) The carrying value of these loans include unamortized discounts, premiums, deferred fees and costs totaling net discounts of $0.2 million and $0.2 million as of December 31, 2015 and 2014, respectively. The Company’s loans individually evaluated for impair- ment primarily represent loans on non- accrual status and therefore, the unamortized amounts associated with these loans are not currently being amortized into income. (2) The carrying value of these loans include unamortized discounts, premiums, deferred fees and costs totaling net discounts of $8.2 million and $10.6 million as of December 31, 2015 and 2014, respectively. Credit Characteristics – As part of the Company’s process for monitoring the credit quality of its loans, it performs a quarterly loan portfolio assess- ment and assigns risk ratings to each of its performing loans. Risk ratings, which range from 1 (lower risk) to 5 (higher risk), are based on judgments which are inherently uncertain and there can be no assurance that actual performance will be similar to current expectation. The Company’s recorded investment in performing loans, presented by class and by credit quality, as indicated by risk rating, was as follows ($ in thousands): Senior mortgages Corporate/Partnership loans Subordinate mortgages Total As of December 31, 2015 2014 Performing Loans $ 853,595 641,713 29,039 $ 1,524,347 Weighted Average Risk Ratings 2.96 3.37 3.64 3.15 Performing Loans $ 611,009 501,620 53,836 $ 1,166,465 Weighted Average Risk Ratings 2.73 3.88 2.87 3.23 As of December 31, 2015, the Company’s recorded investment in loans, aged by payment status and presented by class, were as follows ($ in thousands): Senior mortgages Corporate/Partnership loans Subordinate mortgages Total Explanatory Note: Current $ 864,099 647,451 29,039 $ 1,540,589 Less Than and Equal to 90 Days $ – – – $ – Greater Than 90 Days(1) $ 116,250 Total Past Due $ 116,250 – – – – $ 116,250 $ 116,250 Total $ 980,349 647,451 29,039 $ 1,656,839 49 (1) As of December 31, 2015, the Company had four loans which were greater than 90 days delinquent and were in various stages of resolution, including legal proceedings, environmen- tal concerns and foreclosure- related proceedings, and ranged from 1.0 to 7.0 years outstanding. Impaired Loans – The Company’s recorded investment in impaired loans, presented by class, were as follows ($ in thousands)(1): With an allowance recorded: Senior mortgages Corporate/Partnership loans Total Explanatory Note: As of December 31, 2015 As of December 31, 2014 Recorded Investment Unpaid Principal Balance Related Allowance Recorded Investment Unpaid Principal Balance Related Allowance $ 126,754 5,738 $ 132,492 $ 125,776 5,738 $ 131,514 $ (69,627) (2,538) $ (72,165) $ 130,645 9,027 $ 139,672 $ 129,744 9,057 $ 138,801 $ (64,440) (550) $ (64,990) (1) All of the Company’s non- accrual loans are considered impaired and included in the table above. As of December 31, 2014, impaired loans also includes certain loans modified through troubled debt restructurings in accordance with GAAP with a recorded investment of $10.4 million although they are performing and on accrual status. The Company’s average recorded investment in impaired loans and interest income recognized, presented by class, were as follows ($ in thousands): With no related allowance recorded: Senior mortgages Corporate/Partnership loans Subtotal With an allowance recorded: Senior mortgages Corporate/Partnership loans Subordinate mortgages Subtotal Total: Senior mortgages Corporate/Partnership loans Subordinate mortgages Total For the Years Ended December 31, 2015 Average Recorded Investment Interest Income Recognized 2014 Average Recorded Investment Interest Income Recognized 2013 Average Recorded Investment Interest Income Recognized $ – – – 129,135 24,252 – 153,387 129,135 24,252 – $ 153,387 $ – – – 38 12 – 50 38 12 – $ 50 $ 35,659 – 35,659 334,351 52,963 – 387,314 370,010 52,963 – $ 422,973 $ 1,922 – 1,922 158 181 – 339 2,080 181 – $ 2,261 $ 31,409 8,062 39,471 794,247 77,661 32,382 904,290 825,656 85,723 32,382 $ 943,761 $ 9,269 6,050 15,319 1,976 323 – 2,299 11,245 6,373 – $ 17,618 50 There was no interest income related to the resolution of non- performing loans recorded during the years ended December 31, 2015 and 2014. During the year ended December 31, 2013, the Company recorded interest income of $13.3 million related to the resolution of non- performing loans. Interest income was not previously recorded while the loans were on non- accrual status. Troubled Debt Restructurings – During the year ended December 31, 2015, the Company modified two senior loans that were determined to be troubled debt restructurings. The Company restruc- tured one non- performing loan with a recorded investment of $5.8 million to grant a maturity extension of one year. The Company also modified one non- performing loan with a recorded investment of $11.6 million to grant a discounted payoff option and a maturity extension of one year. The Company’s recorded investment in these loans was not impacted by the modifications. During the year ended December 31, 2014, the Company restruc- tured one non- performing senior loan that was determined to be a troubled debt restructuring with a recorded investment of $7.0 million to grant a maturity extension of one year and included conditional extension options. The Company’s recorded investment in this loan was not impacted by the modification. During the year ended December 31, 2013, the Company restructured six senior loans that were determined to be troubled debt restructurings. The Company restructured two performing loans with a com- bined recorded investment of $4.6 million to grant maturity extensions of one year each. Non- performing loans with a combined investment of $174.5 mil- lion were also modified during the year ended December 31, 2013. Included in this balance were two loans with a combined recorded investment of $98.3 million in which the Company received $15.4 million of paydowns and accepted discounted payoff options on these loans. At the time of the restructuring, the Company reclassified the loans from non- performing to performing status as the Company believed the borrowers would perform under the modified terms of the agreements. The loans were repaid in January 2014 and July 2014 at the discounted payoff amount. Generally when granting concessions, the Company will seek to protect its position by requiring incremental pay downs, additional collat- eral or guarantees and in some cases lookback features or equity kickers to offset concessions granted should conditions impacting the loan improve. The Company’s determination of credit losses is impacted by troubled debt restructurings whereby loans that have gone through troubled debt restruc- turings are considered impaired, assessed for specific reserves, and are not included in the Company’s assessment of general loan loss reserves. Loans previously restructured under troubled debt restructurings that sub- sequently default are reassessed to incorporate the Company’s current assumptions on expected cash flows and additional provision expense is recorded to the extent necessary. As of December 31, 2015, there were no unfunded commitments associated with modified loans considered troubled debt restructurings. Securities – Other lending investments – securities includes the following ($ in thousands): As of December 31, 2015 Available-for-Sale Securities Municipal debt securities Held-to- Maturity Securities Corporate debt securities Total As of December 31, 2014 Available-for-Sale Securities Municipal debt securities Held-to- Maturity Securities Corporate debt securities Total Face Value Amortized Cost Basis Net Unrealized Gain (Loss) Estimated Fair Value Net Carrying Value $ 1,010 $ 1,010 $ 151 $ 1,161 $ 1,161 54,549 $ 55,559 61,128 $ 62,138 – $ 151 61,199 $ 62,360 61,128 $ 62,289 $ 1,020 $ 1,020 $ 147 $ 1,167 $ 1,167 176,254 $ 177,274 186,504 $ 187,524 – $ 147 190,199 $ 191,366 186,504 $ 187,671 As of December 31, 2015, the contractual maturities of the Company’s securities were as follows ($ in thousands): Maturities Within one year After one year through 5 years After 5 years through 10 years After 10 years Total Note 7 – Other Investments Held-to- Maturity Securities Available-for-Sale Securities Amortized Cost Basis Estimated Fair Value Amortized Cost Basis Estimated Fair Value $ 61,128 $ 61,199 – – – – – – $ 61,128 $ 61,199 $ – – – 1,010 $ 1,010 $ – – – 1,161 $ 1,161 51 The Company’s other investments and its proportionate share of earnings (losses) from equity method investments were as follows ($ in thousands): Other real estate equity investments (1) iStar Net Lease I LLC (“Net Lease Venture”) Other investments (2)(3) Marina Palms, LLC (“Marina Palms”) Madison Funds Total other investments Explanatory Notes: Carrying Value As of December 31, Equity in Earnings (Losses) For the Years Ended December 31, 2015 $ 81,452 69,096 51,559 30,099 21,966 $ 254,172 2014 $ 88,848 125,360 63,263 30,677 45,971 $ 354,119 2015 $ (5,212) 5,221 9,434 23,626 (916) $ 32,153 2014 $ 36,842 1,915 38,385 14,671 3,092 $ 94,905 2013 $ 2,869 – 23,810 45 14,796 $ 41,520 (1) For the year ended December 31, 2014, the Company recognized $32.9 million of earnings from equity method investments resulting from asset sales by one of its equity method investees. (2) During the year ended December 31, 2014, the Company recognized $23.4 million of earnings from equity method investments resulting from asset sales and a legal settlement by one of its equity method investees. (3) In conjunction with the sale of the Company’s interests in Oak Hill Advisors, L.P. in 2011, the Company retained a share of the carried interest related to various funds. During the years ended December 31, 2015 and 2014, the Company recognized $2.2 million and $9.0 million of carried interest income. Net Lease Venture – In February 2014, the Company partnered with a sovereign wealth fund to form a new unconsolidated entity in which the Company has an equity interest of approximately 51.9%. This entity is not a VIE and the Company does not have controlling interest due to the substantive participating rights of its partner. The partners plan to contribute up to an aggregate $500 million of equity to acquire and develop net lease assets over time. The Company is responsible for sourcing new opportunities and managing the venture and its assets in exchange for a promote and management fee. Several of the Company’s senior executives whose time is substantially devoted to the net lease venture own a total of 0.6% equity ownership in the venture via co- investment. These senior executives are also entitled to an amount equal to 50% of any promote payment received based on the 47.5% partner’s interest. During the year ended December 31, 2014, the Company sold a net lease asset for net proceeds of $93.7 million, which approximated carrying value, to the venture. The Company also sold its 72% interest in a previously consolidated entity, which owns a net lease asset subject to a mortgage of $26.0 million, to the venture for net proceeds of $10.1 million, which approximated carrying value. During the same period, the venture purchased a portfolio of 58 net lease assets for a purchase price of $200.0 million from a third party. As of December 31, 2015 and 2014, the venture’s carrying value of total assets was $400.2 million and $348.1 mil- lion, respectively. In June 2015, the venture placed ten year debt financing of $120.0 million on one of its net lease assets. Net proceeds from the financing were distributed to its members of which the Company received approxi- mately $61.2 million. During the years ended December 31, 2015 and 2014, the Company recorded $1.5 million and $1.3 million, respectively, of manage- ment fees from the Net Lease Venture. The management fees are included in “Other income” in the Company’s consolidated statements of operations. Marina Palms – During the year ended December 31, 2013, the Company sold land for net proceeds of $21.4 million to Marina Palms, a residential condominium development in which the Company has a 47.5% equity interest. This entity is not a VIE and the Company does not have controlling interest due to shared control of the entity with its partner. As of December 31, 2015 and 2014, the venture’s carrying value of total assets was $278.5 million and $265.7 million, respectively. Other real estate equity investments – During the year ended December 31, 2015, the Company sold a commercial operating property for $68.5 million to a newly formed unconsolidated entity in which the Company owns a 50.0% equity interest (refer to Note 4). The Company recognized a gain on sale of $13.6 million, reflecting the Company’s share of the inter- est sold, which was recorded as “Income from sales of real estate” in the Company’s consolidated statements of operations. The venture placed financing on the property and proceeds from the financing were distributed to its members. Net proceeds received by the Company were $55.4 million, which was net of the Company’s $13.6 million non-cash equity contribution to the venture and inclusive of a $21.0 million distribution from the financing proceeds. This entity is not a VIE and the Company does not have a control- ling interest due to shared control of the entity with its partner. During the year ended December 31, 2014, an unconsolidated entity for which the Company held a 50.0% noncontrolling equity interest sold all of its properties. As a result of the transaction, the Company received net proceeds of $48.1 million and recognized a gain of $32.9 million, which is included in “Earnings from equity method investments” in its consolidated statements of operations. During the year ended December 31, 2014, the Company contrib- uted land to a newly formed unconsolidated entity in which the Company received an initial equity interest of 85.7%. This entity is a VIE and the Company does not have controlling interest due to shared control of the entity with its partner. As of December 31, 2015 and 2014, the Company had a recorded equity interest of $6.3 million and $9.4 million, respectively. Additionally, the Company committed to provide $45.7 million of mezza- nine financing to the entity. As of December 31, 2015, the loan balance was $33.7 million and is included in “Loans receivable and other lending invest- ments, net” on the Company’s consolidated balance sheets. During the years ended December 31, 2015 and 2014, the Company recorded $3.9 million and $0.6 million of interest income, respectively. During the year ended December 31, 2014, the Company and a consortium of co- lenders formed a new unconsolidated entity, in which the Company received an initial 15.7% equity interest, which acquired, via foreclosure sale, title to a land asset which previously served as collateral for a loan receivable held by the consortium. This entity is not a VIE and the Company does not have controlling interest in the entity as the Company’s voting rights are based on its ownership percentage in the entity. During the year ended December 31, 2014, as a result of the transaction, the Company recorded an additional provision of $2.8 million in “Provision for (recovery of) loan losses” in its consolidated statements of operations. As of December 31, 2015 and 2014, the Company had a recorded equity interest of $24.0 million and $23.5 million, respectively. During the year ended December 31, 2013, the Company contrib- uted land to a newly formed unconsolidated entity in which the Company received an equity interest of 75.6%. As of December 31, 2015 and 2014, the Company had a recorded equity interest of $13.5 million and $21.1 million, respectively. This entity is a VIE and the Company does not have controlling interest due to shared control of the entity with its partners. In addition, during the year ended December 31, 2013, the Company contributed land to a newly formed unconsolidated entity in which the Company also received a 50.0% equity interest. As of December 31, 2015 and 2014, the Company had a recorded equity interest of $9.9 million and $7.8 million, respectively. This entity is not a VIE and the Company does not have controlling interest due to shared control of the entity with its partner. As of December 31, 2015, the Company’s other real estate equity investments included equity interests in real estate ventures ranging from 31% to 70%, comprised of investments of $11.1 million in operating properties and $16.6 million in land assets. As of December 31, 2014, the Company’s other real estate equity investments included $13.2 million in operating prop- erties and $13.8 million in land assets. 52 Madison Funds – As of December 31, 2015, the Company owned a 29.5% interest in Madison International Real Estate Fund II, LP, a 32.9% inter- est in Madison International Real Estate Liquidity Fund III, LP, a 32.9% interest in Madison International Real Estate Liquidity Fund III AIV, LP and a 29.5% interest in Madison GP1 Investors, LP (collectively, the “Madison Funds”). The Madison Funds invest in ownership positions of entities that own real estate assets. The Company determined that these entities are VIEs and that the Company is not the primary beneficiary. Other Investments – As of December 31, 2015, the Company also had smaller investments in real estate related funds and other strategic investments in several other entities that were accounted for under the equity method or cost method. During the year ended December 31, 2015, the Company sold available-for-sale securities for proceeds of $7.4 million for gains of $2.6 million, which are included in “Other income” in the Company’s consolidated statements of operations. The amount reclassified out of accu- mulated other comprehensive income into earnings was determined based on the specific identification method. LNR – In July 2010, the Company acquired an ownership interest of approximately 24% in LNR Property Corporation (“LNR”). LNR is a ser- vicer and special servicer of commercial mortgage loans and CMBS and a diversified real estate investment, finance and management company. In the transaction, the Company and a group of investors, including other creditors of LNR, acquired 100% of the common stock of LNR in exchange for cash and the extinguishment of existing senior notes of LNR’s parent hold- ing company (the “Holdco Notes”). The Company contributed $100.0 million aggregate principal amount of Holdco Notes and $100.0 million in cash in exchange for an equity interest of $120.0 million. Beginning in September 2012, the Company and other owners of LNR entered into negotiations with potential purchasers of LNR. After an extensive due diligence and negotiation process, the LNR owners entered into a definitive contract to sell LNR in January 2013 at a fixed sale price which, from the Company’s perspective, reflected in part the Company’s then- current expectations about the future results of LNR and potential volatility in its business. The definitive sale contract provided that LNR would not make cash distributions to its owners during the fourth quarter of 2012 through the closing of the sale. Notwithstanding the fixed terms of the con- tract, our investment balance in LNR increased due to equity in earnings recorded which resulted in our recognition of other than temporary impair- ment on our investment during the year ended December 31, 2013. In April 2013, the Company completed the sale of its 24% equity interest in LNR and received $220.3 million in net proceeds. Approximately $25.2 million of net proceeds, which were placed in escrow for potential indemnification obli- gations, were released to the Company in April 2014. The following table represents investee level summarized financial information for LNR ($ in thousands)(1): Income Statements Total revenue(2) Income tax (expense) benefit Net income attributable to LNR(3) iStar’s ownership percentage iStar’s equity in earnings from LNR Cash Flows Operating cash flows Cash flows from investing activities Cash flows from financing activities Net cash flows Cash distributions iStar’s ownership percentage Cash distributions received by iStar For the Period from October 1, 2012 to April 19, 2013 For the Year Ended September 30, 2012 $ 179,373 (2,137) 113,478 24% $ 45,375 $ (127,075) (36,543) 217,241 53,623 – 24% – $ $ 332,902 (6,731) 253,039 24% $ 60,669 $ (85,909) (55,686) 229,634 88,039 61,179 24% $ 14,690 Explanatory Notes: (1) The Company recorded its investment in LNR, which was sold in April 2013, on a one quarter lag. Therefore, the amounts in the Company’s financial statements for the year ended December 31, 2013 was based on balances and results from LNR for the period from October 1, 2012 to April 19, 2013. The amounts in the Company’s financial state- ments for the year ended December 31, 2012 are based on the balances and results from LNR for the year ended September 30, 2012. (2) LNR consolidates certain commercial mortgage- backed securities and collateral- ized debt obligation trusts that are considered VIEs (and for which it is the primary beneficiary), that have been included in the amounts presented above. Total revenue presented above includes $55.5 million and $95.4 million for the period from October 1, 2012 to April 19, 2013 and for the year ended September 30, 2012, respectively, of servic- ing fee revenue that is eliminated upon consolidation of the VIE’s at the LNR level. This income is then added back through consolidation at the LNR level as an adjustment to income allocable to noncontrolling entities and has no net impact on net income attributable to LNR. (3) Subsequent to the sale of the Company’s interest in LNR, LNR reported a reduction in their earnings of $66.2 million related to a purchase price allocation adjustment. The reduction was reflected in LNR’s operations for the three months ended March 31, 2013, which resulted in a net loss for the period. Because the Company recorded its invest- ment in LNR on a one quarter lag, the adjustment was reflected in the quarter ended June 30, 2013. There was no net impact on the Company’s previously reported equity in earnings as the Company limited its proportionate share of earnings from LNR pursu- ant to the definitive sale agreement as described above. 53 The following table reconciles the activity related to the Company’s investment in LNR for the three months ended March 31, 2013 and June 30, 2013, the six months ended December 31, 2013 and the year ended December 31, 2013 ($ in thousands): Carrying value of LNR at beginning of period Equity in earnings of LNR for the period(1) Balance before other than temporary impairment Other than temporary impairment(1) Sales proceeds pursuant to contract Carrying value of LNR at end of period Explanatory Note: For the Three Months Ended March 31, 2013 For the Three Months Ended June 30, 2013 $ 205,773 45,375 251,148 (30,867) – 220,281 $ 220,281 – 220,281 – (220,281) – For the Six Months Ended December 31, 2013 $ – – – – – – For the Year Ended December 31, 2013 $ 205,773 45,375(a) 251,148 (30,867)(b) (220,281) – (1) During the year ended December 31, 2013, the Company recorded an other than temporary impairment of $30.9 million. Subsequent to the sale of the Company’s interest in LNR, LNR reported a reduction in their earnings of $66.2 million related to a purchase price allocation adjustment. The reduction was reflected in LNR’s operations for the three months ended March 31, 2013, which resulted in a net loss for the period. Because the Company recorded its investment in LNR on a one quarter lag, the adjustment was reflected in the quarter ended June 30, 2013. There was no net impact on the Company’s previously reported equity in earnings as the Company limited its proportionate share of earnings from LNR pursuant to the definitive sale agreement as described above. For the year ended December 31, 2013, the amount that was recognized as income in the Company’s Consolidated Statements of Operations is the sum of items (a) and (b), and $1.7 million of income recognized for the release of other comprehensive income related to LNR upon sale, or $16.5 million. Summarized investee financial information – The following tables present the investee level summarized financial information of the Company’s equity method investments ($ in thousands): 54 For the Year Ended December 31, 2015 Marina Palms, LLC (“Marina Palms”) iStar Net Lease I LLC (“Net Lease Venture”) OHASCF 1000 SCI, LLC Outlets at Westgate, LLC (“Westgate”) Other investments Total For the Year Ended December 31, 2014 Marina Palms Net Lease Venture(1) OHASCF Westgate Other investments Total For the Year Ended December 31, 2013 OHASCF Westgate Marina Palms(2) Other investments Total Revenues Expenses Net Income Attributable to Parent Entities $ 179,333 $ (115,584) $ 63,749 31,315 111,707 10,060 111,010 (367) 4,576 45,501 $ 481,224 $ (245,968) $ 234,529 (20,666) (697) (367) (11,150) (97,504) 15,726 143,143 – $ 114,125 $ (77,120) $ 37,005 3,691 77,311 3,500 318,703 $ 626,039 $ (185,603) $ 440,210 (9,917) (951) (9,618) (87,997) 13,826 78,262 13,118 406,708 $ 72,313 $ 12,447 73 199,680 (1,642) $ 70,671 3,558 (8,889) (3,452) (3,525) 135,421 (63,577) $ 284,513 $ (77,633) $ 206,198 Explanatory Notes: (1) The Company began accounting for its investment in Net Lease Venture under the equity method of accounting on February 13, 2014. The amounts in the Company’s financial statements for the year ended December 31, 2014 are based on the bal- ances and results from Net Lease Venture for the period from February 13, 2014 to December 31, 2014. (2) The Company began accounting for its investment in Marina Palms under the equity method of accounting on April 17, 2013. The amounts in the Company’s financial state- ments for the year ended December 31, 2013 are based on the balances and results from Marina Palms for the period from April 17, 2013 to December 31, 2013. As of December 31, Balance Sheets Total assets Total liabilities Noncontrolling interests Total equity 2015 2014 $ 3,597,587 $ 3,464,984 479,298 3,297 2,982,389 768,622 19,208 2,809,757 Note 8 – Other Assets and Other Liabilities Deferred expenses and other assets, net, consist of the following items ($ in thousands): As of December 31, Intangible assets, net(1) Other assets(2) Restricted cash Deferred financing fees, net(3) Other receivables Leasing costs, net(4) Corporate furniture, fixtures and equipment, net(5) Deferred expenses and other assets, net 2015 2014 $ 71,446 $ 50,088 37,085 19,283 36,774 13,115 20,031 5,409 $ 206,557 $ 181,785 35,464 26,657 26,635 22,557 19,393 4,405 Explanatory Notes: (1) Intangible assets, net are primarily related to the acquisition of real estate assets. This balance also includes a lease incentive asset of $38.1 million (refer to Note 4). Accumulated amortization on intangible assets was $37.3 million and $45.1 million as of December 31, 2015 and 2014, respectively. The amortization of above market leases and lease incentive assets decreased operating lease income in the Company’s consolidated statements of operations by $6.7 million, $8.6 million and $7.2 million for the years ended December 31, 2015, 2014, and 2013, respectively. These intangible lease assets are amortized over the term of the lease. The amortization expense for other intangible assets was $3.6 million, $6.7 million and $8.2 million for the years ended December 31, 2015, 2014, and 2013, respectively. These amounts are included in “Depreciation and amortization” in the Company’s consolidated statements of operations. (2) Includes a $7.0 million receivable in connection with the sale of a land parcel in December 2015. (3) Accumulated amortization on deferred financing fees was $27.8 million and $15.4 mil- lion as of December 31, 2015 and 2014, respectively. (4) Accumulated amortization on leasing costs was $9.8 million and $9.0 million as of December 31, 2015 and 2014, respectively. (5) Accumulated depreciation on corporate furniture, fixtures and equipment was $8.1 million and $7.1 million as of December 31, 2015 and 2014, respectively. Accounts payable, accrued expenses and other liabilities consist of the following items ($ in thousands): As of December 31, Accrued expenses(1) Other liabilities(2) Accrued interest payable Intangible liabilities, net(3) Accounts payable, accrued expenses and other liabilities(4) 2015 2014 $ 68,937 $ 62,866 48,256 57,895 11,885 80,332 55,081 10,485 $ 214,835 $ 180,902 Explanatory Notes: (1) As of December 31, 2015 and 2014, accrued expenses includes $5.3 million and $2.7 mil- lion, respectively, associated with “Real estate available and held for sale” on the Company’s consolidated balance sheets. (2) As of December 31, 2015 and 2014, “Other liabilities” includes $14.5 million and $6.8 million, respectively, related to a profit sharing payable to a developer for resi- dential units sold and $4.4 million and $0.9 million, respectively, associated with “Real estate available and held for sale” on the Company’s consolidated balance sheets. As of December 31, 2015 and 2014, “Other liabilities” also includes $6.6 million and $7.7 million, respectively related to tax increment financing bonds which were issued by a governmental entity to fund the installation of infrastructure within one of the Company’s master planned community developments. The balance represents a special assessment associated with each individual land parcel, which will decrease as the Company sells parcels. As of December 31, 2015, includes $0.9 million related to share repurchases that settled in January 2016. As of December 31, 2015, includes $6.0 million of deferred net revenue in connection with the sale of a land and develop- ment asset (refer to Note 5). (3) Intangible liabilities, net are primarily related to the acquisition of real estate assets. Accumulated amortization on intangible liabilities was $6.6 million and $6.2 million as of December 31, 2015 and 2014, respectively. The amortization of intangible liabilities increased operating lease income in the Company’s consolidated statements of opera- tions by $1.5 million, $2.5 million and $2.8 million for the years ended December 31, 2015, 2014 and 2013, respectively. (4) As of December 31, 2015 and 2014, includes $26.2 million and $15.2 million, respectively, of capital expenditures that have not yet been paid in cash. Intangible assets – The estimated expense from the amortization of lease intangible assets for each of the five succeeding fiscal years is as follows ($ in thousands): 2016 2017 2018 2019 2020 $3,312 3,127 2,834 2,768 2,706 Note 9 – Loan Participations Payable, net During the year ended December 31, 2015, the Company transferred to a third party a $100.0 million junior loan participation in a $250.0 million mezzanine loan commitment that it had previously originated. The Company had funded $38.9 million of the junior loan prior to transfer and received pro- ceeds of $38.9 million upon transfer. The transferee is responsible for funding the remaining $61.1 million under the junior loan commitment, which bears interest at a rate of 5.9%. The Company will fund these commitments if the transferee defaults. During the year ended December 31, 2015, the transferee funded an additional $14.1 million directly to the borrower. During the year ended December 31, 2015, the Company transferred to a third party a $100.0 million senior loan participation in a $220.2 million senior loan commitment that it had previously originated. The transferred participation bears interest at a rate of LIBOR+ 3.50% with a LIBOR floor of 0.25%. The Company had fully funded the $100.0 million transferred partici- pation prior to transfer and received net proceeds of $99.2 million. These transfers of financial assets did not meet the sales criteria established under ASC Topic 860 and have been accounted for as loan par- ticipations payable as of December 31, 2015, with a balance of $152.3 million, net of a discount. As of December 31, 2015, the corresponding loan receiv- able balances were $153.0 million and are included in “Loans receivable and other lending investments, net” on the Company’s consolidated balance sheets. The principal and interest due on these participations are paid from cash flows of the corresponding loans receivable, which serve as collateral for the participations. 55 Note 10 – Debt Obligations, net As of December 31, 2015 and 2014, the Company’s debt obligations were as follows ($ in thousands): Carrying Value as of December 31, 2015 2014 Stated Interest Rates Scheduled Maturity Date Secured credit facilities and term loans: 2012 Tranche A-2 Facility 2015 Revolving Credit Facility Term loans collateralized by net lease assets Total secured credit facilities and term loans Unsecured notes: 6.05% senior notes 5.875% senior notes 3.875% senior notes 3.00% senior convertible notes(4) 1.50% senior convertible notes(5) 5.85% senior notes 9.00% senior notes 4.00% senior notes 7.125% senior notes 4.875% senior notes 5.00% senior notes Total unsecured notes Other debt obligations: Other debt obligations Total debt obligations Debt discounts, net Total debt obligations, net(6) Explanatory Notes: 56 $ 339,717 250,000 239,547 829,264 – 261,403 265,000 200,000 200,000 99,722 275,000 550,000 300,000 300,000 770,000 3,221,125 100,000 4,150,389 (6,706) $ 4,143,683 $ 358,504 – 248,955 607,459 105,765 261,403 265,000 200,000 200,000 99,722 275,000 550,000 300,000 300,000 770,000 3,326,890 100,000 4,034,349 (11,665) $ 4,022,684 LIBOR + 5.75%(1) Various(2) 4.85%–7.26%(3) March 2017 March 2018 Various through 2026 6.05% 5.875% 3.875% 3.00% 1.50% 5.85% 9.00% 4.00% 7.125% 4.875% 5.00% – March 2016 July 2016 November 2016 November 2016 March 2017 June 2017 November 2017 February 2018 July 2018 July 2019 LIBOR + 1.50% October 2035 (1) The loan has a LIBOR floor of 1.25%. As of December 31, 2015, inclusive of the floor, the 2012 Tranche A-2 Facility loan incurred interest at a rate of 7.00%. (2) The loan bears interest at the Company’s election of either (i) a base rate, which is the greater of (a) prime, (b) federal funds plus 0.5% or (c) LIBOR plus 1.00% and subject to a margin ranging from 1.25% to 1.75%, or (ii) LIBOR subject to a margin ranging from 2.25% to 2.75%. At maturity, the Company may convert outstanding borrowings to a one year term loan which matures in quarterly installments through March 2019. (3) As of December 31, 2015 and 2014, includes a loan with a floating rate of LIBOR plus 2.00%. As of December 31, 2015, the weighted average interest rate of these loans is 5.3%. (4) The Company’s 3.00% senior convertible fixed rate notes due November 2016 (“3.00% Convertible Notes”) are convertible at the option of the holders, into 85.0 shares per $1,000 prin- cipal amount of 3.00% Convertible Notes, at $11.77 per share at any time prior to the close of business on November 14, 2016. (5) The Company’s 1.50% senior convertible fixed rate notes due November 2016 (“1.50% Convertible Notes”) are convertible at the option of the holders, into 57.8 shares per $1,000 princi- pal amount of 1.50% Convertible Notes, at $17.29 per share at any time prior to the close of business on November 14, 2016. (6) The Company capitalized interest relating to development activities of $5.3 million, $4.9 million and $2.6 million for the years ended December 31, 2015 2014 and 2013, respectively. Future Scheduled Maturities – As of December 31, 2015, future scheduled maturities of outstanding debt obligations are as follows ($ in thousands): 2016 2017 2018 2019 2020 Thereafter Total principal maturities Debt discounts, net Total debt obligations, net Unsecured Debt $ 926,403 924,722 600,000 770,000 – 100,000 3,321,125 (5,522) $ 3,315,603 Secured Debt – $ 339,717 263,290 30,795 Total $ 926,403 1,264,439 863,290 800,795 – 295,462 4,150,389 (6,706) $ 828,080 $ 4,143,683 195,462 829,264 (1,184) – 2015 Revolving Credit Facility – On March 27, 2015, the Company entered into a secured revolving credit facility with a maximum capacity of $250.0 million (the “2015 Revolving Credit Facility”). Borrowings under this credit facility bear interest at a floating rate indexed to one of several base rates plus a margin which adjusts upward or downward based upon the Company’s corporate credit rating. An undrawn credit facility commitment fee ranges from 0.375% to 0.5%, based on average utilization each quar- ter. During the year ended December 31, 2015, the weighted average cost of the credit facility was 3.13%. Commitments under the revolving facility mature in March 2018. At maturity, the Company may convert outstanding borrowings to a one year term loan which matures in quarterly installments through March 2019. 2012 Secured Credit Facilities – In March 2012, the Company entered into an $880.0 million senior secured credit agreement providing for two tranches of term loans: a $410.0 million 2012 A-1 tranche due March 2016, which bore interest at a rate of LIBOR + 4.00% (the “2012 Tranche A-1 Facility”), and a $470.0 million 2012 A-2 tranche due March 2017, which bears interest at a rate of LIBOR + 5.75% (the “2012 Tranche A-2 Facility,” together the “2012 Secured Credit Facilities”). The 2012 A-1 and A-2 tranches were issued at 98.0% of par and 98.5% of par, respectively, and both tranches include a LIBOR floor of 1.25%. Proceeds from the 2012 Secured Credit Facilities, together with cash on hand, were used to repurchase and repay other outstanding debt. The 2012 Secured Credit Facilities are collateralized by a first lien on a fixed pool of assets. Proceeds from principal repayments and sales of col- lateral are applied to amortize the 2012 Secured Credit Facilities. Proceeds received for interest, rent, lease payments and fee income are retained by the Company. The Company may also make optional prepayments, subject to prepayment fees. The 2012 Tranche A-1 Facility was fully repaid in August 2013. Additionally, through December 31, 2015, the Company made cumu- lative amortization repayments of $130.3 million on the 2012 Tranche A-2 Facility. For the years ended December 31, 2015, 2014 and 2013, repayments of the 2012 Secured Credit Facilities prior to maturity resulted in losses on early extinguishment of debt of $0.3 million, $1.5 million and $1.0 million, respectively, related to the accelerated amortization of discounts and unam- ortized deferred financing fees on the portion of the facility that was repaid. These amounts are included in “Loss on early extinguishment of debt, net” in the Company’s consolidated statements of operations. Unsecured Notes – In June 2014, the Company issued $550.0 mil- lion aggregate principal amount of 4.00% senior unsecured notes due November 2017 and $770.0 million aggregate principal amount of 5.00% senior unsecured notes due July 2019. Net proceeds from these transactions, together with cash on hand, were used to fully repay and terminate the February 2013 secured credit facility which had an outstanding balance of $1.32 billion. In connection with the repayment and termination of the February 2013 secured credit facility, for the year ended December 31, 2014, the Company recorded a loss on early extinguishment of debt of $22.8 mil- lion related to unamortized discounts and financing fees at the time of refinancing. This amount is included in “Loss on early extinguishment of debt, net” in the Company’s consolidated statements of operations. In November 2013, the Company issued $200.0 million aggregate principal of 1.50% convertible senior unsecured notes due November 2016. Proceeds from the transaction, together with cash on hand, were used to fully repay the remaining $200.6 million of outstanding 5.70% senior unse- cured notes due March 2014. In connection with the repayment of the 5.70% senior unsecured notes, the Company incurred $2.8 million of losses related to a prepayment penalty and the accelerated amortization of dis- counts, which was recorded in “Loss on early extinguishment of debt, net” in the Company’s consolidated statements of operations for the year ended December 31, 2013. In May 2013, the Company issued $265.0 million aggregate princi- pal of 3.875% senior unsecured notes due July 2016 and issued $300.0 million aggregate principal of 4.875% senior unsecured notes due July 2018. Net proceeds from these transactions, together with cash on hand, were used to fully repay the remaining $96.8 million of outstanding 8.625% senior unse- cured notes due June 2013 and the remaining $448.5 million of outstanding 5.95% senior unsecured notes due in October 2013. In connection with the repayment of the 5.95% senior unsecured notes, the Company incurred $9.5 million of losses related to a prepayment penalty and the accelerated amortization of discounts, which was recorded in “Loss on early extinguish- ment of debt, net” in the Company’s consolidated statements of operations for the year ended December 31, 2013. 57 Encumbered/Unencumbered Assets – As of December 31, 2015 and 2014, the carrying value of the Company’s encumbered and unencumbered assets by asset type are as follows ($ in thousands): As of December 31, 2015 2014 Real estate, net Real estate available and held for sale Land and development Loans receivable and other lending investments, net(1)(2) Other investments Cash and other assets Total Encumbered Assets $ 816,721 10,593 17,714 170,162 22,352 – $ 1,037,542 Unencumbered Assets $ 777,262 126,681 984,249 1,314,823 231,820 1,033,515 $ 4,468,350 Encumbered Assets Unencumbered Assets $ 1,213,960 156,807 961,055 1,364,828 336,411 768,475 $ 4,801,536 $ 602,471 10,496 17,907 46,515 17,708 – $ 695,097 58 Explanatory Notes: (1) As of December 31, 2015 and 2014, the amounts presented exclude general reserves for loan losses of $36.0 million and $33.5 million, respectively. (2) As of December 31, 2015, the amount presented excludes loan participations of $153.0 million. Debt Covenants The Company’s outstanding unsecured debt securities contain corporate level covenants that include a covenant to maintain a ratio of unencumbered assets to unsecured indebtedness of at least 1.2x and a covenant not to incur additional indebtedness (except for incurrences of permitted debt), if on a pro forma basis, the Company’s consolidated fixed charge coverage ratio, determined in accordance with the indentures gov- erning the Company’s debt securities, is 1.5x or lower. If any of the Company’s covenants are breached and not cured within applicable cure periods, the breach could result in acceleration of its debt securities unless a waiver or modification is agreed upon with the requisite percentage of the bondhold- ers. While our ability to incur additional indebtedness under the fixed charge coverage ratio is currently limited, we are permitted to incur indebtedness for the purpose of refinancing existing indebtedness and for other permitted purposes under the indentures. The Company’s 2012 Secured Credit Facilities and the 2015 Revolving Credit Facility contain certain covenants, including covenants relating to collateral coverage, dividend payments, restrictions on fundamental changes, transactions with affiliates, matters relating to the liens granted to the lenders and the delivery of information to the lenders. In particular, the 2012 Secured Credit Facilities require the Company to maintain collat- eral coverage of at least 1.25x outstanding borrowings on the facilities. The 2015 Revolving Credit Facility is secured by a borrowing base of assets and requires the Company to maintain both collateral coverage of at least 1.5x outstanding borrowings on the facility and a consolidated ratio of cash flow to fixed charges of at least 1.5x. The 2015 Revolving Credit Facility does not require that proceeds from the borrowing base be used to pay down out- standing borrowings provided the collateral coverage remains at least 1.5x outstanding borrowings on the facility. To satisfy this covenant, the Company has the option to pay down outstanding borrowings or substitute assets in the borrowing base. In addition, for so long as the Company maintains its qualification as a REIT, the 2012 Secured Credit Facilities and the 2015 Revolving Credit Facility permit the Company to distribute 100% of its REIT taxable income on an annual basis (prior to deducting certain cumulative NOL carryforwards in the case of the 2015 Revolving Credit Facility). The Company may not pay common dividends if it ceases to qualify as a REIT. The Company’s 2012 Secured Credit Facilities and the 2015 Revolving Credit Facility contain cross default provisions that would allow the lenders to declare an event of default and accelerate the Company’s indebted- ness to them if the Company fails to pay amounts due in respect of its other recourse indebtedness in excess of specified thresholds or if the lenders under such other indebtedness are otherwise permitted to accelerate such indebtedness for any reason. The indentures governing the Company’s unsecured public debt securities permit the bondholders to declare an event of default and accelerate the Company’s indebtedness to them if the Company’s other recourse indebtedness in excess of specified thresholds is not paid at final maturity or if such indebtedness is accelerated. Note 11 – Commitments and Contingencies Unfunded Commitments – The Company generally funds construc- tion and development loans and build-outs of space in net lease assets over a period of time if and when the borrowers and tenants meet estab- lished milestones and other performance criteria. The Company refers to these arrangements as Performance-Based Commitments. In addition, the Company sometimes establishes a maximum amount of additional fund- ing which it will make available to a borrower or tenant for an expansion or addition to a project if it approves of the expansion or addition in its sole discretion. The Company refers to these arrangements as Discretionary Fundings. Finally, the Company has committed to invest capital in several real estate funds and other ventures. These arrangements are referred to as Strategic Investments. As of December 31, 2015, the maximum amount of fundings the Company may be required to make under each category, assuming all performance hurdles and milestones are met under the Performance-Based Commitments, that it approves all Discretionary Fundings and that 100% of its capital committed to Strategic Investments is drawn down, are as follows ($ in thousands): Loans and Other Lending Investments Real Estate Other Investments Total Performance-Based Commitments Strategic Investments Discretionary Fundings Total $ 689,014 $ 15,626 – 5,000 $ 694,014 – – $ 15,626 45,940 $ 23,360 $ 728,000 45,940 5,000 $ 69,300 $ 778,940 – Other Commitments – Total operating lease expense for the years ended December 31, 2015, 2014 and 2013 was $6.0 million, $5.8 million and $6.1 million, respectively. Future minimum lease obligations under non-can- celable operating leases are as follows ($ in thousands): 2016 2017 2018 2019 2020 Thereafter $5,722 5,210 4,185 3,442 3,442 4,823 The Company has also issued letters of credit totaling $2.2 million in connection with its investments. Legal Proceedings – The Company and/or one or more of its sub- sidiaries is party to various pending litigation matters that are considered ordinary routine litigation incidental to the Company’s business as a finance and investment company focused on the commercial real estate industry, including loan foreclosure and foreclosure-related proceedings. In addition to such matters, the Company is a party to the following legal proceedings: On March 7, 2014, a shareholder action purporting to assert deriva- tive, class and individual claims was filed in the Circuit Court for Baltimore City, Maryland naming the Company, a number of its current and former senior executives (including its chief executive officer) and current and former directors as defendants. The complaint sought unspecified damages and other relief and alleged breach of fiduciary duty, breach of contract and other causes of action arising out of shares of common stock issued by the Company to its senior executives pursuant to restricted stock unit awards granted in December 2008 and modified in July 2011. On October 30, 2014, the Circuit Court granted the defendants’ Motions to Dismiss and plaintiffs’ claims against all of the defendants in this action were dismissed. Plaintiffs filed a notice of appeal of their dismissal of their claims against the Company and all other defendants. Oral argument took place before the Court of Special Appeals of Maryland on December 9, 2015. On January 28, 2016, the Court of Special Appeals affirmed the order of the Circuit Court, holding that the Circuit Court properly dismissed plaintiffs’ claims against all defendants, including the Company. On January 22, 2015, the United States District Court for the District of Maryland (the “Court”) entered a judgment in favor of the Company in the matter of U.S. Home Corporation (“Lennar”) v. Settlers Crossing, LLC, et al. (Civil Action No. DKC 08-1863). The litigation involved a dispute over the purchase and sale of approximately 1,250 acres of land in Prince George’s County, Maryland. The Court found that the Company was entitled to spe- cific performance and awarded damages to it in the aggregate amount of: (i) the remaining purchase price to be paid by Lennar of $114.0 million; plus (ii) interest on the unpaid amount at a rate of 12% per annum, calculated on a per diem basis, from May 27, 2008, until Lennar proceeds to settlement on the land; plus (iii) real estate taxes paid by the Company; plus (iv) actual and reasonable attorneys’ fees and costs incurred by the Company in connection with the litigation. The Court ordered Lennar to proceed to settlement on the land and to pay the total amounts awarded to the Company within 30 days of the judgment. A third party is entitled to a participation interest in all pro- ceeds. Lennar has appealed the Court’s judgment. The Court has granted Lennar’s motion to stay the judgment pending appeal, subject to Lennar posting a required appeal bond, which has been posted. The Court also clarified the judgment that the unpaid amount will accrue simple interest at a rate of 12% annually, including while the appeal is pending. A court- ordered mediation took place on August 13, 2015, but it was unsuccessful. In the pending appeal before the United States Court of Appeals for the Fourth Circuit, the parties have filed their respective briefs. Oral argument has not yet been scheduled. There can be no assurance as to the timing or actual receipt by the Company of amounts awarded by the Court or the outcome of any appeal. On a quarterly basis, the Company evaluates developments in legal proceedings that could require a liability to be accrued and/or dis- closed. Based on its current knowledge, and after consultation with legal counsel, the Company believes it is not a party to, nor are any of its proper- ties the subject of, any pending legal proceeding that would have a material adverse effect on the Company’s consolidated financial statements. 59 Note 12 – Risk Management and Derivatives Risk management In the normal course of its on-going business operations, the Company encounters economic risk. There are three main components of economic risk: interest rate risk, credit risk and market risk. The Company is subject to interest rate risk to the degree that its interest-bearing liabili- ties mature or reprice at different points in time and potentially at different bases, than its interest-earning assets. Credit risk is the risk of default on the Company’s lending investments or leases that result from a borrower’s or tenant’s inability or unwillingness to make contractually required payments. Market risk reflects changes in the value of loans and other lending invest- ments due to changes in interest rates or other market factors, including the rate of prepayments of principal and the value of the collateral underlying loans, the valuation of real estate assets by the Company as well as changes in foreign currency exchange rates. Risk concentrations – Concentrations of credit risks arise when a number of borrowers or tenants related to the Company’s investments are engaged in similar business activities, or activities in the same geographic region, or have similar economic features that would cause their ability to meet contractual obligations, including those to the Company, to be similarly affected by changes in economic conditions. Substantially all of the Company’s real estate as well as assets collateralizing its loans receivable are located in the United States. As of December 31, 2015, the only states with a concentration greater than 10.0% were New York with 19.9% and California with 13.6%. As of December 31, 2015, the Company’s portfolio contains concentrations in the following asset types: office/industrial 22.5%, land 22.7%, mixed use/mixed collateral 15.8% and hotel 10.6%. The Company underwrites the credit of prospective borrowers and tenants and often requires them to provide some form of credit support such as corporate guarantees, letters of credit and/or cash security deposits. Although the Company’s loans and real estate assets are geographically diverse and the borrowers and tenants operate in a variety of industries, to the extent the Company has a significant concentration of interest or operating lease revenues from any single borrower or tenant, the inability of that borrower or tenant to make its payment could have a material adverse effect on the Company. As of December 31, 2015, the Company’s five largest borrowers or tenants collectively accounted for approximately $118 million of the Company’s 2015 revenues, of which no single customer accounts for more than 6%. Derivatives The Company’s use of derivative financial instruments is primarily limited to the utilization of interest rate swaps, interest rate caps and foreign exchange contracts. The principal objective of such financial instruments is to minimize the risks and/or costs associated with the Company’s operat- ing and financial structure and to manage its exposure to interest rates and foreign exchange rates. Derivatives not designated as hedges are not speculative and are used to manage the Company’s exposure to interest rate movements, foreign exchange rate movements, and other identified risks, but may not meet the strict hedge accounting requirements. The table below presents the fair value of the Company’s derivative financial instruments as well as their classification on the consolidated bal- ance sheets as of December 31, 2015 and 2014 ($ in thousands): Derivative Assets as of December 31, Derivative Liabilities as of December 31, 2015 2014 2015 2014 Balance Sheet Location Fair Value Balance Sheet Location Fair Value Balance Sheet Location Fair Value Balance Sheet Location Fair Value 60 Derivatives Designated in Hedging Relationships Foreign exchange contracts Other Assets $ 39 N/A $ – N/A $ – Interest rate swaps Total Derivatives not Designated in Hedging Relationships Foreign exchange contracts Interest rate cap Total N/A – 39 $ Other Assets Other Assets Other Assets $ 378 1,105 $ 1,483 Other Assets Other Assets 52 52 $ $ 1,534 4,775 $ 6,309 Other Liabilities 131 $ 131 N/A N/A $ – – – $ Other Liabilities N/A $ 478 – $ 478 N/A N/A $ – – – $ The tables below present the effect of the Company’s derivative financial instruments in the consolidated statements of operations and the con- solidated statements of comprehensive income (loss) for the years ended December 31, 2015, 2014 and 2013 ($ in thousands): Amount of Gain (Loss) Recognized in Accumulated Other Comprehensive Income (Effective Portion) Amount of Gain (Loss) Reclassified from Accumulated Other Comprehensive Income into Earnings (Effective Portion) Amount of Gain (Loss) Reclassified from Accumulated Other Comprehensive Income into Earnings (Ineffective Portion) Derivatives Designated in Hedging Relationships Location of Gain (Loss) Recognized in Income For the Year Ended December 31, 2015 Interest rate cap Interest rate cap Interest rate swaps Interest rate swaps Foreign exchange contracts For the Year Ended December 31, 2014 Interest rate cap Interest rate cap Interest rate cap Interest rate swaps Interest rate swap Interest Expense Earnings from equity investments Interest Expense Earnings from equity investments Earnings from equity investments Interest Expense Other Expense Earnings from equity method investments Interest Expense Earnings from equity method investments Foreign exchange contracts Earnings from equity method For the Year Ended December 31, 2013 Interest rate cap Interest rate swap Foreign exchange contracts investments Interest Expense Interest Expense Earnings from equity method investments $ – (13) (537) (528) (124) – (2,984) (9) (970) (753) (471) (1,517) 869 393 $ (626) (1) 170 (464) – (56) – – (6) (420) – – (310) – Derivatives not Designated in Hedging Relationships Interest rate cap Foreign exchange contracts Location of Gain or (Loss) Recognized in Income Other Expense Other Expense Amount of Gain or (Loss) Recognized in Income For the Years Ended December 31, 2015 $ (3,671) 2,403 2014 $ (1,347) 7,257 Foreign Exchange Contracts – The Company is exposed to fluctua- tions in foreign exchange rates on investments it holds in foreign entities. The Company uses foreign exchange contracts to hedge its exposure to changes in foreign exchange rates on its foreign investments. Foreign exchange con- tracts involve fixing the U.S. dollar (“USD”) to the respective foreign currency exchange rate for delivery of a specified amount of foreign currency on a specified date. The foreign exchange contracts are typically cash settled in USD for their fair value at or close to their settlement date. For derivatives designated as net investment hedges, the effec- tive portion of changes in the fair value of the derivatives are reported in Accumulated Other Comprehensive Income as part of the cumulative trans- lation adjustment. The ineffective portion of the change in fair value of the derivatives is recognized directly in earnings. Amounts are reclassified out of Accumulated Other Comprehensive Income into earnings when the hedged foreign entity is either sold or substantially liquidated. As of December 31, 2015, the Company had the following outstanding foreign currency deriva- tives that were used to hedge its net investments in foreign operations that were designated (Rs and $ in thousands): Derivative Type Sells INR/Buys USD Forward Notional Amount Notional (USD Equivalent) Maturity Rs 456,000 $6,553 December 2016 N/A N/A N/A N/A N/A N/A (3,634) N/A N/A N/A N/A N/A N/A N/A 2013 – $ 880 61 For derivatives not designated as net investment hedges, the changes in the fair value of the derivatives are reported in the Company’s consoli- dated statements of operations within “Other Expense.” As of December 31, 2015, the Company had the following outstanding foreign currency derivatives that were used to hedge its net investments in foreign operations that were not designated ($, €, and £ in thousands): Derivative Type Sells euro (“EUR”)/Buys USD Forward Sells pound sterling (“GBP”)/Buys USD Forward Notional Amount €5,700 £3,000 Notional (USD Equivalent) $6,439 $4,557 Maturity January 2016 January 2016 The Company marks its foreign investments each quarter based on current exchange rates and records the gain or loss through “Other expense” in its consolidated statements of operations for loan investments or “Accumulated other comprehensive income (loss),” on its consolidated balance sheets for net investments in foreign subsidiaries. The Company recorded net gains (losses) related to foreign investments of $(0.1) million, $0.1 million and $(2.0) million during the years ended December 31, 2015, 2014 and 2013, respectively, in its consolidated statements of operations. Interest Rate Hedges – For derivatives designated as interest rate hedges, the effective portion of changes in the fair value of the derivatives are reported in Accumulated Other Comprehensive Income (Loss). The ineffective portion of the change in fair value of the derivatives is recognized directly in the Company’s consolidated statements of operations. The Company entered into an interest rate swap to convert its variable rate debt to fixed rate on a $28.0 million secured term loan maturing in 2019. As of December 31, 2015, the Company had the following outstanding interest rate swap that was used to hedge its variable rate debt that was designated ($ in thousands): Derivative Type Interest rate swap Notional Amount $26,935 Variable Rate LIBOR + 2.00% Fixed Rate 3.47% Effective Date October 2012 Maturity November 2019 62 For derivatives not designated as interest rate hedges, the changes in the fair value of the derivatives are reported in the Company’s consolidated statements of operations within “Other Expense.” In August 2013, the Company entered into an interest rate cap agreement to reduce exposure to expected increases in future interest rates and the resulting payments associated with variable interest rate debt. In June 2014, in connection with the full repayment and termination of the Company’s February 2013 Secured Credit Facility referenced in Note 10, the Company realized amounts in earnings from other com- prehensive income (loss) as a portion of a hedge related to the Company’s variable rate debt was no longer expected to be highly effective. The amount realized was a loss of $3.6 million recorded as a component of “Other expense” in the Company’s consolidated statements of operations. As of December 31, 2015, the Company had the following outstanding interest rate cap that was used to hedge its variable rate debt that was not designated ($ in thousands): Derivative Type Interest rate cap Notional Amount $500,000 Variable Rate LIBOR Fixed Rate 1.00% Effective Date July 2014 Maturity July 2017 Over the next 12 months, the Company expects that $0.1 mil- lion related to terminated cash flow hedges will be reclassified from “Accumulated other comprehensive income (loss)” into interest expense and $0.5 million relating to other cash flow hedges will be reclassified from “Accumulated other comprehensive income (loss)” into earnings. Credit Risk-Related Contingent Features – The Company has agreements with each of its derivative counterparties that contain a provi- sion where if the Company either defaults or is capable of being declared in default on any of its indebtedness, then the Company could also be declared in default on its derivative obligations. The Company reports derivative instruments on a gross basis in the consolidated financial statements. In connection with its foreign currency derivatives, which were in a liability position as of December 31, 2015 and 2014, the Company has posted collateral of $1.0 million and $3.0 million, respectively, which is included in “Deferred expenses and other assets, net” on the Company’s consolidated balance sheets. The Company’s net expo- sure under these contracts was zero as of December 31, 2015. Note 13 – Equity Preferred Stock – The Company had the following series of Cumulative Redeemable and Convertible Perpetual Preferred Stock outstanding as of December 31, 2015 and 2014: Shares Issued and Outstanding (in thousands) 4,000 5,600 4,000 3,200 5,000 4,000 25,800 Series D E F G I J(3) Explanatory Notes: Cumulative Preferential Cash Dividends(1)(2) Par Value $0.001 0.001 0.001 0.001 0.001 0.001 Liquidation Preference $25.00 25.00 25.00 25.00 25.00 50.00 Rate per Annum 8.00% 7.875% 7.80% 7.65% 7.50% 4.50% Equivalent to Fixed Annual Rate (per share) $2.00 1.97 1.95 1.91 1.88 2.25 (1) Holders of shares of the Series D, E, F, G, I and J preferred stock are entitled to receive dividends, when and as declared by the Company’s Board of Directors, out of funds legally available for the payment of dividends. Dividends are cumulative from the date of original issue and are payable quarterly in arrears on or before the 15th day of each March, June, September and December or, if not a business day, the next succeeding business day. Any dividend payable on the preferred stock for any partial dividend period will be computed on the basis of a 360-day year consisting of twelve 30-day months. Dividends will be payable to holders of record as of the close of business on the first day of the calendar month in which the applicable dividend payment date falls or on another date designated by the Company’s Board of Directors for the payment of dividends that is not more than 30 nor less than 10 days prior to the dividend payment date. (2) The Company declared and paid dividends of $8.0 million, $11.0 million, $7.8 million, $6.1 million and $9.4 million on its Series D, E, F, G and I Cumulative Redeemable Preferred Stock during the years ended December 31, 2015 and 2014. The Company declared and paid dividends of $9.0 million on its Series J Convertible Perpetual Preferred Stock during the years ended December 31, 2015 and 2014, respectively. All of the dividends qualified as return of capital for tax reporting purposes. There are no dividend arrearages on any of the preferred shares currently outstanding. (3) Each share of the Series J Preferred Stock is convertible at the holder’s option at any time, initially into 3.9087 shares of the Company’s common stock (equal to an initial conversion price of approximately $12.79 per share), subject to specified adjustments. The Company may not redeem the Series J Preferred Stock prior to March 15, 2018. On or after March 15, 2018, the Company may, at its option, redeem the Series J Preferred Stock, in whole or in part, at any time and from time to time, for cash at a redemption price equal to 100% of the liquidation preference of $50.00 per share, plus accrued and unpaid dividends, if any, to the redemption date. 63 High Performance Unit Program In May 2002, the Company’s shareholders approved the iStar HPU Program. The program entitled employee participants (“HPU Holders”) to receive distributions if the total rate of return on the Company’s common stock (share price appreciation plus dividends) exceeded certain performance thresholds over a specified valuation period. The Company established seven HPU plans that had valuation periods ending between 2002 and 2008 and the Company has not established any new HPU plans since 2005. HPU Holders purchased interests in the High Performance common stock for an aggregate initial purchase price of $9.8 million. The remaining four plans that had valuation periods which ended in 2005, 2006, 2007 and 2008, did not meet their required performance thresholds, none of the plans were funded and the Company redeemed the participants’ units. The 2002, 2003 and 2004 plans all exceeded their performance thresholds and were entitled to receive distributions equivalent to the amount of dividends payable on 819,254 shares, 987,149 shares and 1,031,875 shares, respectively, of the Company’s common stock as and when such dividends are paid on the Company’s common stock. Each of these three plans has 5,000 shares of High Performance common stock associated with it, which was recorded as a separate class of stock within shareholders’ equity on the Company’s consolidated balance sheets. High Performance common stock carries 0.25 votes per share. Net income allocable to common shareholders is reduced by the HPU holders’ share of earnings. In August 2015, the Company repurchased and retired all of its outstanding 14,888 HPUs, representing approximately 2.8 million common stock equivalents. The Company repurchased these HPUs at fair value from current and former employees through an arms-length exchange offer. HPU holders could elect to receive $9.30 in cash or 0.7 shares of iStar common stock, or a combination thereof, per common stock equivalent underlying the HPUs. Approximately 37% of the outstanding HPUs were exchanged for $9.8 million in cash and approximately 63% of the outstanding HPUs were exchanged for 1.2 million shares of iStar common stock with a fair value of $15.2 million, representing the number of shares issued at the closing price of the Company’s common stock on August 13, 2015. The transaction value in excess of the HPUs carrying value of $9.8 million was recorded as a reduc- tion to retained earnings (deficit) in the Company’s consolidated statements of changes in equity. Dividends – In order to maintain its qualification as a REIT, the Company must currently distribute, at a minimum, an amount equal to 90% of its taxable income, excluding net capital gains, and must distribute 100% of its taxable income (including net capital gains) to avoid paying corpo- rate federal income taxes. The Company has recorded NOLs and may record NOLs in the future, which may reduce its taxable income in future periods and lower or eliminate entirely the Company’s obligation to pay dividends for such periods in order to maintain its REIT qualification. As of December 31, 2014, the Company had $856.4 million of NOL carryforwards 64 at the corporate REIT level that can generally be used to offset both ordinary and capital taxable income in future years and will expire through 2034 if unused. The amount of NOL carryforwards as of December 31, 2015 will be determined upon finalization of the Company’s 2015 tax return. Because taxable income differs from cash flow from operations due to non-cash rev- enues and expenses (such as depreciation and certain asset impairments), in certain circumstances, the Company may generate operating cash flow in excess of its dividends or, alternatively, may need to make dividend pay- ments in excess of operating cash flows. The 2012 Tranche A-2 Facility and the 2015 Revolving Credit Facility permit the Company to distribute 100% of its REIT taxable income on an annual basis (prior to deducting certain cumulative NOL carryforwards in the case of the 2015 Revolving Credit Facility), for so long as the Company maintains its qualification as a REIT. The 2012 Tranche A-2 Facility and the 2015 Revolving Credit Facility restrict the Company from paying any common dividends if it ceases to qualify as a REIT. The Company did not declare or pay any common stock dividends for the years ended December 31, 2015 and 2014. Stock Repurchase Program – In September 2015, the Company’s Board of Directors approved an increase in the repurchase limit under the Company’s previously approved stock repurchase program to $50.0 mil- lion. In December 2015, after having substantially utilized the availability approved in September 2015, the Company’s Board of Directors authorized a new $50.0 million repurchase program. The program authorizes the repurchase of common stock from time to time in open market and privately negotiated purchases, including pursuant to one or more trading plans. There were no stock repurchases during the year ended December 31, 2014. During the year ended December 31, 2015, the Company repurchased 5.7 million shares of its outstanding common stock for $70.3 million, at an average cost of $12.25 per share. As of December 31, 2015, the Company had remaining authorization to repurchase up to $48.7 million of common stock available to repurchase under its stock repurchase program. Subsequent to December 31, 2015, the Company repurchased 5.2 million shares of its outstanding common stock for $52.0 million, at an average cost of $10.10 per share. In February 2016, the Company’s Board of Directors authorized a new $50.0 million repurchase program. Accumulated Other Comprehensive Income (Loss) – “Accumulated other comprehensive income (loss)” reflected in the Company’s shareholders’ equity is comprised of the following ($ in thousands): As of December 31, Unrealized gains (losses) on available-for-sale securities Unrealized gains (losses) on cash flow hedges Unrealized losses on cumulative translation adjustment Accumulated other comprehensive income (loss) 2015 2014 $ (125) (690) $ 2,983 (409) (4,036) $ (4,851) (3,545) $ (971) Note 14 – Stock-Based Compensation Plans and Employee Benefits On May 22, 2014, the Company’s shareholders approved the 2013 Performance Incentive Plan (“iPIP”) which is designed to provide, primarily to senior executives and select professionals engaged in the Company’s invest- ment activities, long-term compensation which has a direct relationship to the realized returns on investments included in the plan. In May 2014, the Company granted 73 iPIP points for the initial 2013-2014 investment pool and in February 2015, the Company granted an additional 10 points for the 2013- 2014 investment pool and 34 iPIP points for the 2015-2016 investment pool. All decisions regarding the granting of points under iPIP are made at the discretion of the Company’s Board of Directors or a committee of the Board of Directors. The fair value of points is determined using a model that fore- casts the Company’s projected investment performance. The payout of iPIP is based on the amount of invested capital, investment performance and the Company’s total shareholder return (“TSR”) as compared to the average TSR of the NAREIT All REIT Index and the Russell 2000 Index during the relevant performance period for the investments in each pool. The Company, as well as any companies not included in each index at the beginning and end of the performance period, are excluded from calculation of the performance of such index. Point holders will not receive a distribution until the Company has received a full return of its capital plus a preferred return distribution, which is based on a preferred return hurdle rate of 9% per annum. Subject to certain vesting and employment requirements, point holders will be paid a combination of cash and stock. iPIP is a liability-classified award which will be remeasured each reporting period at fair value until the awards are settled. Compensation costs relating to iPIP are included in “General and administrative” in the Company’s consolidated statements of operations. As of December 31, 2015 and 2014, the Company had accrued compensation costs relating to iPIP of $16.6 million and $7.8 million, respectively, which are included in “Accounts payable, accrued expenses and other liabilities” on the Company’s consolidated balance sheets. The Company’s shareholders approved the Company’s 2009 Long- Term Incentive Plan (the “2009 LTIP”) which is designed to provide incentive compensation for officers, key employees, directors and advisors of the Company. The 2009 LTIP provides for awards of stock options, shares of restricted stock, phantom shares, restricted stock units, dividend equiva- lent rights and other share-based performance awards. A maximum of 8,000,000 shares of common stock may be awarded under the 2009 LTIP. All awards under the 2009 LTIP are made at the discretion of the Company’s Board of Directors or a committee of the Board of Directors. The Company’s 2006 Long-Term Incentive Plan (the “2006 LTIP”) is designed to provide equity-based incentive compensation for officers, key employees, directors, consultants and advisors of the Company. The 2006 LTIP provides for awards of stock options, shares of restricted stock, phan- tom shares, dividend equivalent rights and other share-based performance awards. A maximum of 4,550,000 shares of common stock may be subject to awards under the 2006 LTIP provided that the number of shares of common stock reserved for grants of options designated as incentive stock options is 1.0 million, subject to certain anti-dilution provisions in the 2006 LTIP. All awards under this Plan are at the discretion of the Company’s Board of Directors or a committee of the Board of Directors. As of December 31, 2015, an aggregate of 3.7 million shares remain available for issuance pursuant to future awards under the Company’s 2006 and 2009 Long-Term Incentive Plans. The Company’s 2007 Incentive Compensation Plan (“Incentive Plan”) was approved and adopted by the Company’s Board of Directors in 2007 in order to establish performance goals for selected officers and other key employees and to determine bonuses that will be awarded to those officers and other key employees based on the extent to which they achieve those performance goals. Equity-based awards may be made under the Incentive Plan, subject to the terms of the Company’s equity incentive plans. Stock-Based Compensation – The Company recorded stock-based compensation expense of $12.0 million, $13.3 million and $19.3 million for the years ended December 31, 2015, 2014 and 2013 in “General and admin- istrative” in the Company’s consolidated statements of operations. As of December 31, 2015, there was $1.9 million of total unrecognized compensa- tion cost related to all unvested restricted stock units that are expected to be recognized over a weighted average remaining vesting/service period of 0.86 years. Restricted Share Issuances During the year ended December 31, 2015, the Company granted 318,482 shares of common stock to certain employees as part of annual incentive awards that included a mix of cash and shares. The weighted average grant date fair value per share of these share awards was $13.04 and the total fair value was $4.2 million. The shares are fully-vested and 189,241 shares were issued net of statutory minimum required tax withhold- ings. The employees are restricted from selling these shares for up to two years from the date of grant. Restricted Stock Units Changes in non-vested restricted stock units (“Units”) during the year ended December 31, 2015 were as follows (number of shares and $ in thousands, except per share amounts): Non-vested as of December 31, 2014 Granted Vested Forfeited Non-vested as of December 31, 2015 Number of Shares 320 119 (7) (6) 426 Weighted Average Grant Date Fair Value Per Share $ 12.57 $ 13.65 $ 8.53 $ 14.66 $ 12.90 Aggregate Intrinsic Value $ 4,367 $ 4,991 The total fair value of Units vested during the years ended December 31, 2015, 2014 and 2013 was $0.1 million, $39.2 million and $31.6 million, respectively. 2015 Restricted Stock Unit Activity – During the year ended December 31, 2015, the Company granted new stock-based compensation awards to certain employees in the form of long-term incentive awards, comprised of the following: – 49,650 target amount of performance-based Units were granted on January 30, 2015, representing the right to receive an equiva- lent number of shares of the Company’s common stock (after deducting shares for minimum required statutory withholdings) if and when the Units vest. The performance is based on the Company’s TSR, measured over a performance period ending on December 31, 2017, which is the date the awards cliff vest. Vesting will range from 0% to 200% of the target amount of the awards, depending on the Company’s TSR performance relative to the NAREIT All REITs Index (one-half of the target amount of the award) and the Russell 2000 Index (one-half of the target amount of the award) during the performance period. The Company, as well as any companies not included in each index at the beginning and end of the performance period, are excluded from calculation of the performance of such index. To the extent Units vest based on the Company’s TSR perfor- mance, holders will receive an equivalent number of shares of common stock (after deducting shares for minimum required statutory withholdings), if the employee remains employed by the Company on the vesting date, subject to certain accelerated vesting rights. Dividends will accrue as and when dividends are declared by the Company on shares of its common stock, but will not be paid unless and until the Units vest and are settled. The fair values of the performance-based Units were deter- mined by utilizing a Monte Carlo model to simulate a range of possible future stock prices for the Company’s common stock. The assumptions used to estimate the fair value of these perfor- mance-based awards were 0.75% for risk-free interest rate and 28.14% for expected stock price volatility. As of December 31, 2015, 48,519 of such performance-based Units were outstanding. – 64,196 service-based Units were granted on January 30, 2015, representing the right to receive an equivalent number of shares of the Company’s common stock (after deducting shares for mini- mum required statutory withholdings) if and when the Units vest. The Units will cliff vest in one installment on December 31, 2017, if the employee remains employed by the Company on the vesting date, subject to certain accelerated vesting rights. Dividends will accrue as and when dividends are declared by the Company on shares of its common stock, but will not be paid unless and until the Units vest and are settled. As of December 31, 2015, 61,557 of such service-based Units were outstanding. – 4,751 service-based Units were granted on various dates to cer- tain employees, representing the right to receive an equivalent number of shares of the Company’s common stock (after deduct- ing shares for minimum required statutory withholdings) if and when the Units vest. The Units will cliff vest in one installment on the third anniversary of the grant date of the award, if the employee remains employed by the Company on the vesting date, subject to certain accelerated vesting rights. Dividends will accrue as and when dividends are declared by the Company on 65 66 shares of its common stock, but will not be paid unless and until the Units vest and are settled. As of December 31, 2015, 4,751 of such service-based Units were outstanding. As of December 31, 2015, the Company had the following additional stock-based compensation awards outstanding: – 49,434 target amount of performance-based Units, granted on January 10, 2014, representing the right to receive an equivalent number of shares of the Company’s common stock (after deduct- ing shares for minimum required statutory withholdings) if and when the Units vest based on the Company’s TSR measured over a performance period ending on December 31, 2016, which is the date the awards cliff vest. The other terms of these performance- based Units are identical to the terms described above for the performance-based Units granted in 2015. The fair values of the performance-based Units were determined by utilizing a Monte Carlo model to simulate a range of possible future stock prices for the Company’s common stock. The assumptions used to estimate the fair value of these performance-based awards were 0.76% for risk-free interest rate and 44.84% for expected stock price volatility. – 62,662 service-based Units, granted on January 10, 2014, repre- senting the right to receive an equivalent number of shares of the Company’s common stock (after deducting shares for minimum required statutory withholdings) if and when the Units vest. The Units will cliff vest in one installment on December 31, 2016, if the employee remains employed by the Company on the vesting date, subject to certain accelerated vesting rights. Dividends will accrue as and when dividends are declared by the Company on shares of its common stock, but will not be paid unless and until the Units vest and are settled. – 194,526 service-based Units, granted on February 1, 2013, repre- senting the right to receive an equivalent number of shares of the Company’s common stock (after deducting shares for minimum required statutory withholdings) if and when the Units vest. The Units will cliff vest in one installment on February 1, 2016, three years from the grant date, if the employee remains employed by the Company on the vesting date, subject to certain accelerated vesting rights. Dividends will accrue as and when dividends are declared by the Company on shares of its common stock, but will not be paid unless and until the Units vest and are settled. – 4,000 service-based Units granted on May 14, 2013, represent- ing the right to receive an equivalent number of shares of the Company’s common stock (after deducting shares for minimum required statutory withholdings) if and when the Units vest. The Units will cliff vest in one installment on May 14, 2016, three years from the grant date, if the employee remains employed by the Company on the vesting date, subject to certain accelerated vesting rights. Dividends will accrue as and when dividends are declared by the Company on shares of its common stock, but will not be paid unless and until the Units vest and are settled. Directors’ Awards – Non-employee directors are awarded common stock equivalents (“CSEs”) or restricted stock awards (“RSAs”) at the time of the annual shareholders’ meeting in consideration for their services on the Company’s Board of Directors. During the year ended December 31, 2015, the Company awarded to non-employee Directors a combined 50,360 CSEs and RSAs at a fair value per share of $14.40 at the time of grant. These CSEs and RSAs have a one year vesting period and pay dividends, if any, in an amount equal to the dividends paid on the equivalent number of shares of the Company’s common stock from the date of grant, as and when dividends are paid on common stock. In addition, during the year ended December 31, 2015, the Company issued an additional 7,494 RSAs to a non- employee Director, who joined the Company’s Board of Directors in July 2015, pursuant to the Company’s Non-Employee Directors Deferral Plan, at a fair value per share of $13.09 at the time of grant. As of December 31, 2015, a total of 296,755 CSEs and RSAs of the Company’ common stock granted to members of the Company’s Board of Directors remained outstanding under such Plan, with an aggregate intrinsic value of $3.5 million. 401(k) Plan – The Company has a savings and retirement plan (the “401(k) Plan”), which is a voluntary, defined contribution plan. All employ- ees are eligible to participate in the 401(k) Plan following completion of three months of continuous service with the Company. Each participant may contribute on a pretax basis up to the maximum percentage of compensa- tion and dollar amount permissible under Section 402(g) of the Internal Revenue Code not to exceed the limits of Code Sections 401(k), 404 and 415. At the discretion of the Company’s Board of Directors, the Company may make matching contributions on the participant’s behalf of up to 50% of the first 10% of the participant’s annual compensation. The Company made gross contributions of $1.0 million for the year ended December 31, 2015 and $0.9 million each year for the years ended December 31, 2014 and 2013. Note 15 – Earnings Per Share Earnings per share (“EPS”) is calculated using the two-class method, which allocates earnings among common stock and participating securities to calculate EPS when an entity’s capital structure includes either two or more classes of common stock or common stock and participating securities. HPU holders were current and former Company employees who purchased high performance common stock units under the Company’s High Performance Unit Program. These HPU units were treated as a separate class of common stock. All of the Company’s outstanding HPUs were repurchased and retired on August 13, 2015 (refer to Note 13). The following table presents a reconciliation of income (loss) from continuing operations used in the basic and diluted EPS calculations ($ in thousands, except for per share data): For the Years Ended December 31, Income (loss) from continuing operations Income from sales of real estate Net (income) loss attributable to noncontrolling interests Preferred dividends Income (loss) from continuing operations attributable to iStar Inc. and allocable to common shareholders, 2015 $ (99,973) 93,816 3,722 (51,320) 2014 $ (74,178) 89,943 704 (51,320) 2013 $ (220,768) 86,658 (718) (49,020) HPU holders and Participating Security Holders for basic earnings per common share $ (53,755) $ (34,851) $ (183,848) For the Years Ended December 31, Earnings allocable to common shares: Numerator for basic and diluted earnings per share: Income (loss) from continuing operations attributable to iStar Inc. and allocable to common shareholders Income (loss) from discontinued operations Gain from discontinued operations Net income (loss) attributable to iStar Inc. and allocable to common shareholders Denominator for basic and diluted earnings per share: 2015 2014 2013 $ (52,675) $ (33,722) – – – – $ (52,675) $ (33,722) $ (177,907) 623 21,515 $ (155,769) Weighted average common shares outstanding for basic and diluted earnings per common share 84,987 85,031 84,990 Basic and diluted earnings per common share: Income (loss) from continuing operations attributable to iStar Inc. and allocable to common shareholders Income (loss) from discontinued operations Gain from discontinued operations Net income (loss) attributable to iStar Inc. and allocable to common shareholders For the Years Ended December 31, Earnings allocable to HPUs(1): Numerator for basic and diluted earnings per HPU share: $ $ (0.62) – – (0.62) $ $ (0.40) – – (0.40) $ $ (2.09) 0.01 0.25 (1.83) 2015 2014 2013 67 Income (loss) from continuing operations attributable to iStar Inc. and allocable to HPU holders Income (loss) from discontinued operations Gain from discontinued operations Net income (loss) attributable to iStar Inc. and allocable to HPU holders $ (1,080) $ (1,129) – – – – $ (1,080) $ (1,129) $ (5,941) 21 718 $ (5,202) Denominator for basic and diluted earnings per HPU share: Weighted average HPUs outstanding for basic and diluted earnings per share 9 15 15 Basic and diluted earnings per HPU share: Income (loss) from continuing operations attributable to iStar Inc. and allocable to HPU holders Income (loss) from discontinued operations Gain from discontinued operations Net income (loss) attributable to iStar Inc. and allocable to HPU holders $ (120.00) $ (75.27) – – – – $ (120.00) $ (75.27) $ (396.07) 1.40 47.87 $ (346.80) Explanatory Note: (1) All of the Company’s outstanding HPUs were repurchased and retired on August 13, 2015 (refer to Note 13). For the years ended December 31, 2015, 2014 and 2013, the following shares were not included in the diluted EPS calculation because they were anti-dilutive (in thousands): For the Years Ended December 31, Joint venture shares 3.00% convertible senior unsecured notes Series J convertible perpetual preferred stock 1.50% convertible senior unsecured notes Explanatory Note: 2015(1) 298 16,992 15,635 11,567 2014(1) 298 16,992 15,635 11,567 2013(1) 298 16,992 15,635 11,567 (1) For the years ended December 31, 2015, 2014 and 2013, the effect of the Company’s unvested Units, performance-based Units and CSEs were anti-dilutive. Note 16 – Fair Values Fair value represents the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The following fair value hierarchy prioritizes the inputs to be used in valuation techniques to measure fair value: Level 1: Unadjusted quoted prices in active markets that are acces- sible at the measurement date for identical, unrestricted assets or liabilities; Level 2: Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability; and Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., sup- ported by little or no market activity). Certain of the Company’s assets and liabilities are recorded at fair value either on a recurring or non-recurring basis. Assets required to be marked-to-market and reported at fair value every reporting period are classified as being valued on a recurring basis. Assets not required to be recorded at fair value every period may be recorded at fair value if a spe- cific provision or other impairment is recorded within the period to mark the carrying value of the asset to market as of the reporting date. Such assets are classified as being valued on a non-recurring basis. The following fair value hierarchy table summarizes the Company’s assets and liabilities recorded at fair value on a recurring and non-recurring basis by the above categories ($ in thousands): 68 As of December 31, 2015 Recurring basis: Derivative assets(1) Derivative liabilities(1) Available-for-sale securities(1) Non-recurring basis: Impaired loans(2) As of December 31, 2014 Recurring basis: Derivative assets(1) Derivative liabilities(1) Available-for-sale securities(1) Non-recurring basis: Impaired loans(3) Impaired real estate(4) Explanatory Notes: Fair Value Using Quoted market prices in active markets (Level 1) Significant other observable inputs (Level 2) Total Significant unobservable inputs (Level 3) $ 1,522 131 1,161 3,200 $ 6,361 478 7,906 37,169 7,102 $ – – – – $ – – 7,906 – – $ 1,522 131 – $ – – 1,161 – 3,200 $ 6,361 478 – – – $ – – – 37,169 7,102 (1) The fair value of the Company’s derivatives and available-for-sale securities are based upon third-party broker quotes. (2) The Company recorded a provision for loan losses on one loan with a fair value of $3.2 million based on a discounted cash flow analysis. (3) The Company recorded a recovery of loan losses on one loan with a fair value of $8.5 million based on the loan’s remaining term of 1.5 years and interest rate of 4.7% using discounted cash flow analysis. The Company also recorded a provision for loan losses on one loan with a fair value of $5.2 million based on an appraisal. In addition, the Company recorded a provision for loan losses on one loan, collateralized by a land asset, with a fair value of $23.5 million based upon a foreclosure sale agreement. The land asset was acquired by an unconsolidated entity in which the Company is a partner. (4) The Company recorded impairment on one real estate asset with a fair value of $7.1 million based on a discount rate of 15.0% using discounted cash flows over a 10 year lease term. Fair values of financial instruments – The Company’s estimated fair values of its loans receivable and other lending investments and outstand- ing debt was $1.6 billion and $4.3 billion, respectively, as of December 31, 2015 and $1.4 billion and $4.1 billion, respectively, as of December 31, 2014. The Company determined that the significant inputs used to value its loans receivable and other lending investments and debt obligations fall within Level 3 of the fair value hierarchy. The carrying value of other financial instruments including cash and cash equivalents, restricted cash, accrued interest receivable and accounts payable, approximate the fair values of the instruments. Cash and cash equivalents and restricted cash values are considered Level 1 on the fair value hierarchy. The fair value of other finan- cial instruments, including derivative assets and liabilities, are included in the fair value hierarchy table above. Given the nature of certain assets and liabilities, clearly deter- minable market based valuation inputs are often not available, therefore, these assets and liabilities are valued using internal valuation techniques. Subjectivity exists with respect to these internal valuation techniques, therefore, the fair values disclosed may not ultimately be realized by the Company if the assets were sold or the liabilities were settled with third par- ties. The methods the Company used to estimate the fair values presented in the table above are described more fully below for each type of asset and liability. Derivatives – The Company uses interest rate swaps, interest rate caps and foreign exchange contracts to manage its interest rate and for- eign currency risk. The valuation of these instruments is determined using discounted cash flow analysis on the expected cash flows of each deriva- tive. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, includ- ing interest rate curves, foreign exchange rates, and implied volatilities. The Company incorporates credit valuation adjustments to appropriately reflect both its own non-performance risk and the respective counterparty’s non-performance risk in the fair value measurements. In adjusting the fair value of its derivative contracts for the effect of non-performance risk, the Company has considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts and guarantees. The Company has determined that the significant inputs used to value its derivatives fall within Level 2 of the fair value hierarchy. Impaired loans – The Company’s loans identified as being impaired are nearly all collateral dependent loans and are evaluated for impairment by comparing the estimated fair value of the underlying collateral, less costs to sell, to the carrying value of each loan. Due to the nature of the individual properties collateralizing the Company’s loans, the Company generally uses a discounted cash flow methodology through internally developed valuation models to estimate the fair value of the collateral. This approach requires the Company to make judgments in respect to significant unobservable inputs, which may include discount rates, capitalization rates and the timing and amounts of estimated future cash flows. For income producing proper- ties, cash flows generally include property revenues, operating costs and capital expenditures that are based on current observable market rates and estimates for market rate growth and occupancy levels. For other real estate, cash flows may include lot and unit sales that are based on cur- rent observable market rates and estimates for annual revenue growth, operating costs, costs of completion and the inventory sell out pricing and timing. The Company will also consider market comparables if available. In more limited cases, the Company obtains external “as is” appraisals for loan collateral, generally when third party participations exist, and appraised values may be discounted when real estate markets rapidly deteriorate. The Company has determined that significant inputs used in its internal valuation models and appraisals fall within Level 3 of the fair value hierarchy. Impaired real estate – If the Company determines a real estate asset available and held for sale is impaired, it records an impairment charge to adjust the asset to its estimated fair market value less costs to sell. Due to the nature of individual real estate properties, the Company generally uses a discounted cash flow methodology through internally developed valuation models to estimate the fair value of the assets. This approach requires the Company to make judgments with respect to signifi- cant unobservable inputs, which may include discount rates, capitalization rates and the timing and amounts of estimated future cash flows. For income producing properties, cash flows generally include property revenues, oper- ating costs and capital expenditures that are based on current observable market rates and estimates for market rate growth and occupancy levels. For other real estate, cash flows may include lot and unit sales that are based on current observable market rates and estimates for annual market rate growth, operating costs, costs of completion and the inventory sell out pricing and timing. The Company will also consider market comparables if available. In more limited cases, the Company obtains external “as is” appraisals for real estate assets and appraised values may be discounted when real estate markets rapidly deteriorate. The Company has determined that significant inputs used in its internal valuation models and appraisals fall within Level 3 of the fair value hierarchy. Additionally, in certain cases, if the Company is under contract to sell an asset, it will mark the asset to the contracted sales price less costs to sell. The Company considers this to be a Level 3 input under the fair value hierarchy. Loans receivable and other lending investments – The Company estimates the fair value of its performing loans and other lending investments using a discounted cash flow methodology. This method discounts estimated future cash flows using rates management determines best reflect current market interest rates that would be offered for loans with similar character- istics and credit quality. The Company determined that the significant inputs used to value its loans and other lending investments fall within Level 3 of the fair value hierarchy. For certain lending investments, the Company uses market quotes, to the extent they are available, that fall within Level 2 of the fair value hierarchy or broker quotes that fall within Level 3 of the fair value hierarchy. Debt obligations, net – For debt obligations traded in secondary markets, the Company uses market quotes, to the extent they are available, to determine fair value and are considered Level 2 on the fair value hier- archy. For debt obligations not traded in secondary markets, the Company determines fair value using a discounted cash flow methodology, whereby contractual cash flows are discounted at rates that management deter- mines best reflect current market interest rates that would be charged for debt with similar characteristics and credit quality. The Company has deter- mined that the inputs used to value its debt obligations under the discounted cash flow methodology fall within Level 3 of the fair value hierarchy. Note 17 – Segment Reporting The Company has determined that it has four reportable segments based on how management reviews and manages its business. These reportable segments include: Real Estate Finance, Net Lease, Operating Properties and Land and Development. The Real Estate Finance segment includes all of the Company’s activities related to senior and mezzanine real estate loans and real estate related securities. The Net Lease segment includes all of the Company’s activities related to the ownership and leas- ing of corporate facilities. The Operating Properties segment includes all of the Company’s activities and operations related to its commercial and residential properties. The Land and Development segment includes the Company’s activities related to its developable land portfolio. 69 The Company evaluates performance based on the following financial measures for each segment. The Company’s segment information is as follows ($ in thousands): Real Estate Finance Net Lease Operating Properties Land and Development Corporate/ Other(1) Company Total Year Ended December 31, 2015 Operating lease income Interest income Other income Land development revenue Earnings (loss) from equity method investments Income from sales of real estate Total revenue and other earnings 144,424 70 Real estate expense Land development cost of sales Other expense Allocated interest expense Allocated general and administrative(2) Segment profit (loss)(3) Other significant non-cash items: Provision for loan losses Impairment of assets Depreciation and amortization Capitalized expenditures Year Ended December 31, 2014: Operating lease income Interest income Other income Land development revenue Earnings (loss) from equity method investments Income from sales of real estate Total revenue and other earnings Real estate expense Land development cost of sales Other expense Allocated interest expense Allocated general and administrative(2) Segment profit (loss)(3) Other significant non-cash items: Recovery of loan losses Impairment of assets Depreciation and amortization Capitalized expenditures Year Ended December 31, 2013 Operating lease income Interest income Other income Earnings (loss) from equity method investments Income from sales of real estate Income (loss) from discontinued operations(4) Gain from discontinued operations Total revenue and other earnings Real estate expense Other expense Allocated interest expense(5) Allocated general and administrative(2) Segment profit (loss)(3) 134,687 9,737 – – – – – (2,291) (57,109) (13,128) $ 71,896 – – – – $ 122,704 21,217 – – – 143,921 – – (243) (58,043) (13,211) $ 72,424 – – – – $ 108,015 4,748 – – – – 112,763 – (1,625) (74,377) (13,186) $ – $ 151,481 $ 77,454 $ – 357 – 5,221 40,082 197,141 (21,855) – – – 34,637 – 1,663 53,734 167,488 (95,888) – – (66,504) (15,569) $ 93,213 (28,014) (6,988) $ 36,598 785 – $ – – 1,219 100,216 16,683 – 118,903 (29,007) (67,382) – (32,087) (11,488) $ (21,061) 3,981 – 8,586 – 12,567 – – (4,083) (40,925) (22,091) $ (54,532) $ 36,567 $ $ – $ – – 38,138 4,195 $ – 5,935 24,548 84,103 4,589 1,422 94,971 $ 151,934 $ 90,331 $ 835 – $ – 4,437 – 3,260 6,206 165,837 (22,967) – – – 42,000 – 1,669 83,737 217,737 (113,504) – – (72,089) (16,603) $ 54,178 (39,535) (9,608) $ 55,090 3,689 38,841 3,933 – 250 2,699 – 1,484 3,395 155,141 (22,565) – (80,034) (14,330) $ – 8,131 32,142 61,186 – 38,164 5,546 82,603 1,251 18,838 232,754 (101,044) – (49,114) (9,189) $ 73,407 3,327 15,191 14,966 – 34,319 (26,918) (12,840) – (29,432) (13,062) $ (47,933) $ – 22,814 1,440 80,119 902 – 1,474 (5,331) 4,055 – – 1,100 (33,832) – (30,368) (12,365) $ (75,465) $ 147,313 $ 86,352 $ $ (1,714) $ – $ 23,575 $ 38,212 $ 229,720 134,687 49,931 100,216 32,153 93,816 640,523 (146,750) (67,382) (6,374) (224,639) (69,264) $ 126,114 $ 36,567 10,524 65,247 183,269 $ 243,100 122,704 81,033 15,191 94,905 89,943 646,876 (163,389) (12,840) (6,340) (224,483) (74,973) $ 164,851 $ (1,714) 34,634 73,571 145,238 $ 234,567 108,015 48,208 41,520 86,658 2,735 22,233 543,936 (157,441) (8,050) (266,225) (72,853) $ 39,367 – – – – – 1,139 10,052 – 75,010 – 85,062 – – (6,097) (25,384) (22,489) $ 31,092 $ – – 1,148 – $ – – 3,572 38,606 – – – 42,178 – (6,425) (32,332) (23,783) $ (20,362) Other significant non-cash items: Provision for loan losses Impairment of assets(5) Loss on transfer of interest to unconsolidated subsidiary Depreciation and amortization(5) Capitalized expenditures As of December 31, 2015 Real estate Real estate, net Real estate available and held for sale Total real estate Land and development Loans receivable and other lending investments, net Other investments Total portfolio assets Cash and other assets Total assets As of December 31, 2014 Real estate, net Real estate available and held for sale Total real estate Land and development Loans receivable and other lending investments, net Other investments Total portfolio assets Cash and other assets Total assets Explanatory Notes: Real Estate Finance Net Lease Operating Properties Land and Development Corporate/ Other(1) Company Total $ 5,489 – $ – 1,176 $ – 12,449 $ – 728 $ – – $ 5,489 14,353 – 38,582 34,076 – 30,599 41,131 7,373 1,105 36,346 – 1,244 – 7,373 71,530 111,553 – – – – – – – 1,601,985 – $ 1,601,985 1,112,479 – 1,112,479 481,504 137,274 618,778 – – – – – – – 1,001,963 – 69,096 $ 1,181,575 11,124 $ 629,902 100,419 $ 1,102,382 – – – – – 73,533 $ 73,533 – – – – 1,377,843 – $ 1,377,843 1,188,160 4,521 1,192,681 – – 125,360 $ 1,318,041 628,271 162,782 791,053 – – 13,220 $ 804,273 – – – 978,962 – – – – – – 106,155 $ 1,085,117 109,384 $ 109,384 1,593,983 137,274 1,731,257 1,001,963 1,601,985 254,172 4,589,377 1,033,515 $ 5,622,892 1,816,431 167,303 1,983,734 978,962 1,377,843 354,119 4,694,658 768,475 $ 5,463,133 71 (1) Corporate/Other represents all corporate level and unallocated items including any intercompany eliminations necessary to reconcile to consolidated Company totals. This caption also includes the Company’s joint venture investments and strategic investments that are not included in the other reportable segments above. (2) General and administrative excludes stock-based compensation expense of $12.0 million, $13.3 million and $19.3 million for the years ended December 31, 2015, 2014 and 2013, respectively. (3) The following is a reconciliation of segment profit to net income (loss) ($ in thousands): For the Years Ended December 31, Segment profit Less: (Provision for) recovery of loan losses Less: Impairment of assets(4) Less: Loss on transfer of interest to unconsolidated subsidiary Less: Depreciation and amortization(4) Less: Stock-based compensation expense Less: Income tax (expense) benefit(4) Less: Loss on early extinguishment of debt, net Net income (loss) 2015 $ 126,114 (36,567) (10,524) – (65,247) (12,013) (7,639) (281) $ (6,157) 2014 $ 164,851 1,714 (34,634) – (73,571) (13,314) (3,912) (25,369) $ 15,765 2013 $ 39,367 (5,489) (14,353) (7,373) (71,530) (19,261) 596 (33,190) $ (111,233) (4) For the year ended December 31, 2013 excludes certain amounts reclassified to discontinued operations in the Company’s consolidated statements of operations. (5) For the year ended December 31, 2013 includes related amounts reclassified to discontinued operations in the Company’s consolidated statements of operations. Note 18 – Quarterly Financial Information (Unaudited) The following table sets forth the selected quarterly financial data for the Company ($ in thousands, except per share amounts). For the Quarters Ended 2015: Revenue Net income (loss) Earnings per common share data(1): Net income (loss) attributable to iStar Inc. Basic(2) Diluted(2) Earnings per share Basic and diluted Weighted average number of common shares Basic Diluted Earnings per HPU share data(1): Net income (loss) attributable to iStar Inc. Basic and diluted Earnings per share Basic and diluted Weighted average number of HPU shares – basic and diluted 2014: Revenue Net income (loss) Earnings per common share data(1): Net income (loss) attributable to iStar Inc. Basic(2) Diluted(2) Earnings per share Basic Diluted Weighted average number of common shares Basic Diluted Earnings per HPU share data(1): Net income (loss) attributable to iStar Inc. Basic Diluted Earnings per share Basic Diluted Weighted average number of HPU shares – basic and diluted Explanatory Notes: 72 December 31, September 30, June 30, March 31, $ 172,025 $ 19,974 $ 120,487 $ 5,958 $ 109,185 $ (19,776) $ 112,857 $ (12,313) $ 7,685 $ 7,684 $ (6,072) $ (6,072) $ (30,950) $ (30,950) $ (22,553) $ (22,553) $ 0.09 $ (0.07) $ (0.36) $ (0.26) 83,162 83,581 85,766 85,766 85,541 85,541 85,497 85,497 $ $ – – – $ (94) $ (1,027) $ (749) $ (13.41) 7 $ (68.47) 15 $ (49.93) 15 $ 109,950 $ (1,955) $ 113,486 $ 35,491 $ 129,843 $ (3,594) $ 108,749 $ (14,177) $ (13,270) $ (13,270) $ 22,327 $ 27,608 $ (16,207) $ (16,207) $ (26,572) $ (26,572) $ $ (0.16) (0.16) $ $ 0.26 0.21 $ $ (0.19) (0.19) $ $ (0.31) (0.31) 85,188 85,188 85,163 130,160 84,916 84,916 84,819 84,819 $ $ (442) (442) $ $ 744 602 $ $ (542) (542) $ $ (889) (889) $ (29.47) $ (29.47) 15 $ 49.60 $ 40.13 15 $ (36.13) $ (36.13) 15 $ (59.27) $ (59.27) 15 (1) Basic and diluted EPS are computed independently based on the weighted-average shares of common stock and stock equivalents outstanding for each period. Accordingly, the sum of the quarterly EPS amounts may not agree to the total for the year. (2) For the quarter ended December 31, 2015 includes net income attributable to iStar Inc. and allocable to Participating Security Holders of $5 and $5 on a basic and dilutive basis, respectively. For the quarter ended September 30, 2014, includes net income attributable to iStar Inc. and allocable to Participating Security Holders of $2 and $2 on a basic and dilu- tive basis, respectively. Performance Graph Dividends The following graph compares the total cumulative shareholder returns on our Common Stock from December 31, 2010 to December 31, 2015 to that of: (1) the Standard & Poor’s 500 Index (the “S&P 500”); and (2) the Standard & Poor’s 500 Financials Index (the “S&P 500 Financials”). $182.48 $156.77 $100.0 $102.11 $144.78 $118.43 $106.78 $104.22 $82.94 $67.65 $178.21 $174.55 $166.75 $180.66 $164.15 $150.00 12/31/10 12/31/11 12/31/12 12/31/13 12/31/14 12/31/15 iStar S&P 500 S&P 500 Financials Source: Bloomberg COMMON STOCK PRICE AND DIVIDENDS (UNAUDITED) The Company’s common stock trades on the New York Stock Exchange (“NYSE”) under the symbol “STAR.” The high and low sales prices per share of common stock are set forth below for the periods indicated. Quarter Ended December 31 September 30 June 30 March 31 2015 2014 High $13.34 $13.85 $14.77 $14.17 Low $11.55 $11.54 $12.89 $12.40 High $14.60 $15.27 $15.19 $15.91 Low $12.30 $13.26 $13.94 $13.79 On February 19, 2016, the closing sale price of the common stock as reported by the NYSE was $8.55. The Company had 1,960 holders of record of common stock as of February 19, 2016. The Company’s Board of Directors has not established any mini- mum distribution level. In order to maintain its qualification as a REIT, the Company intends to pay dividends to its shareholders that, on an annual basis, will represent at least 90% of its taxable income (which may not nec- essarily equal net income as calculated in accordance with accounting principles generally accepted in the United States (“GAAP”)), determined without regard to the deduction for dividends paid and excluding any net capital gains. The Company has recorded net operating losses (“NOLs”) and may record NOLs in the future, which may reduce its taxable income in future periods and lower or eliminate entirely the Company’s obligation to pay dividends for such periods in order to maintain its REIT qualification. S&P 500 S&P 500 Financials Holders of common stock, certain unvested restricted stock awards and common share equivalents will be entitled to receive distributions if, as and when the Company’s Board of Directors authorizes and declares distributions. However, rights to distributions may be subordinated to the rights of holders of preferred stock, when preferred stock is issued and outstanding. In addition, the Company’s 2012 Tranche A-2 Facility and 2015 Revolving Credit Facility (see Note 10 of the Notes to Consolidated Financial Statements) permit the Company to distribute 100% of its REIT taxable income on an annual basis for so long as the Company maintains its qualification as a REIT. The 2012 Tranche A-2 Facility and 2015 Revolving Credit Facility generally restrict the Company from paying any common dividends if it ceases to qualify as a REIT. In any liquidation, dissolution or winding up of the Company, each outstanding share of common stock will entitle its holder to a proportionate share of the assets that remain after the Company pays its liabilities and any preferential distributions owed to preferred shareholders. SFI The Company did not declare or pay dividends on its common stock for the years ended December 31, 2015 and 2014. The Company declared and paid dividends of $8.0 million, $11.0 million, $7.8 million, $6.1 million, $9.4 million, and $9.0 million on its Series D, E, F, G, I, and J preferred stock, respectively, during each of the years ended December 31, 2015 and 2014. All of the dividends qualified as return of capital for tax reporting purposes. There are no dividend arrearages on any of the preferred shares cur- rently outstanding. Distributions to shareholders will generally be taxable as ordinary income, although all or a portion of such distributions may be designated by the Company as capital gain or may constitute a tax-free return of capital. The Company annually furnishes to each of its shareholders a statement setting forth the distributions paid during the preceding year and their char- acterization as ordinary income, capital gain or return of capital. No assurance can be given as to the amounts or timing of future distributions, as such distributions are subject to the Company’s taxable income after giving effect to its NOL carryforwards, financial condition, capital requirements, debt covenants, any change in the Company’s intention to maintain its REIT qualification and such other factors as the Company’s Board of Directors deems relevant. The Company may elect to satisfy some of its REIT distribution requirements, if any, through qualifying stock dividends. 73 directors and officers Directors Executive Officers Executive Vice Presidents 74 Jay Sugarman Chairman & Chief Executive Officer, iStar Inc. Clifford De Souza (1) Director, iStar Inc. Robert W. Holman, Jr. (2) (3) Chairman & Chief Executive Officer, National Warehouse Investment Company Robin Josephs (2) (3) Lead Director, iStar Inc. John G. McDonald (2) (3) Stanford Investors Professor, Stanford University Graduate School of Business Dale Anne Reiss (1) Senior Consultant, Global Real Estate Center Global & Americas Director of Real Estate, Ernst & Young, LLP (Retired) Barry W. Ridings (1) (2) Vice Chairman of US Investment Banking Lazard Freres & Co. LLC (1) Audit Committee (2) Compensation Committee (3) Nominating & Governance Committee Jay Sugarman Chairman & Chief Executive Officer Elisha J. Blechner Investments Nina B. Matis Executive Vice President, Chief Investment Officer & Chief Legal Officer David M. DiStaso Chief Financial Officer Julia Butler Investments Chase S. Curtis, Jr. Credit Timothy Doherty Investments Karl Frey Land & Development Barclay G. Jones III Investments Michelle M. MacKay Investments / Head of Capital Markets Steven Magee Land & Development David M. Sotolov Investments / Head of West Coast Originations Vernon B. Schwartz Investments “if you change t h e wa y yo u look at things, the things you look at change” – Wayne Dyer corporate information Headquarters 1114 Avenue of the Americas New York, NY 10036 Tel: 212.930.9400 Fax: 212.930.9494 Regional Offices 3480 Preston Ridge Road Suite 575 Alpharetta, GA 30005 Tel: 678.297.0100 Fax: 678.297.0101 525 West Monroe Street Suite 1900 Chicago, IL 60661 Tel: 312.577.8549 Fax: 312.612.4162 One Galleria Tower 13727 Noel Road Suite 150 Dallas, TX 75240 Tel: 972.506.3131 Fax: 972.646.6398 180 Glastonbury Boulevard Suite 201 Glastonbury, CT 06033 Tel: 860.815.5900 Fax: 860.815.5901 75 1777 Ala Moana Boulevard Suite 142-33 Honolulu, HI 96815 Tel: 212.405.4537 Fax: 808.944.6322 10960 Wilshire Boulevard Suite 1260 Los Angeles, CA 90024 Tel: 310.315.7019 Fax: 310.315.7017 4350 Von Karman Avenue Suite 225 Newport Beach, CA 92660 Tel: 949.567.2400 Fax: 949.567.2411 One Sansome Street 30th Floor San Francisco, CA 94104 Tel: 415.391.4300 Fax: 415.391.6259 Employees As of February 19, 2016, the Company had 188 employees. Independent Auditors PricewaterhouseCoopers LLP New York, NY Registrar & Transfer Agent Computershare Trust Company, NA PO Box 43078 Providence, RI 02940-3078 Tel: 800.756.8200 www.computershare.com Annual Meeting of Shareholders May 18, 2016, 9:00 a.m. ET Harvard Club of New York City 35 West 44th Street New York, NY 10036 Certifications with the NYSE. In addition, the Company has filed with the SEC the certifications of the Chief Executive Officer and Chief Financial Officer required under Section 302 and Section 906 of the Sarbanes-Oxley Act of 2002 as exhibits to our most recently filed Annual Report on Form 10-K. For help with questions about the Company, or to receive additional corporate information, please contact: Investor Relations Jason Fooks Vice President, Investor Relations & Marketing 1114 Avenue of the Americas New York, NY 10036 Tel: 212.930.9484 Investor Information Services iStar Inc. is a listed company on the New York Stock Exchange and is traded under the ticker “STAR.” The Company has filed all required Annual Chief Executive Officer Email: investors@istar.com iStar Website: www.istar.com m o c . n o s i d d a . w w w n o s i d d A y b n g i s e D i S t a r A n n u a l R e p o r t 2 0 1 5 uncommon iStar Annual Report 2015
Continue reading text version or see original annual report in PDF format above