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