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A significant year
2017 Annual Report
We recently celebrated our 20th anniversary as a public company and it gave me a chance to reflect
on our past, present and future.
We have always been interested in coming up with game-changing ideas in the real estate world and
scaling them into leadership positions. In 1993, we took a hard look at the real estate finance markets
compared to the corporate finance markets and realized there was a large gap that we could fill, first
as a private company and then as a fully-scaled public company. Bringing a level of problem-solving,
structuring skills and speed not typically available in the marketplace and marrying it to a customer
focused, our-word-is-our-bond approach, we scaled this simple innovation into a multibillion
dollar business generating well above market returns. In 2000, we saw another opportunity to rethink
a core real estate business — this time, the net lease business. Taking the approach that optimizing
a net lease investment required not only real estate expertise, but also insightful corporate credit skills
and sophisticated capital markets knowledge, we bought the largest net lease company on the
NYSE and retooled the company into a powerful earnings generator with clearly demonstrated, superior
returns on its deals. Along the way, we have always been willing to buck the trends to find value for
our shareholders, and have often found excellent returns in areas others have either fled, disregarded
or simply not taken the time to understand. Our data center investments after the tech bust in the
early 2000s, our hotel investments after 9/11, and our first-of-its-kind financing structure for timber in
2006, all generated substantial returns in places others were not looking.
With markets flush with capital providers and competition, we took the opportunity over the past
two years to incubate another idea that we believe will fundamentally change the way owners of real
estate think about their properties. In June of last year, we launched a new public company,
Safety, Income & Growth Inc. (NYSE: SAFE), to completely reinvent the use of ground leases in the
marketplace. The company has begun executing on a strategy to maximize returns for owners of all
major property types in the top markets around the country by separating the different risk-return
profile of land from the risk-return profile of the building on top of the land. This completely natural
evolution mirrors what has happened in almost all other parts of the capital markets and in the
real estate finance markets. The most efficient markets, and most highly valued markets, allocate
different risk-reward profiles to different investors, and the resulting sum of the parts exceeds the
previous whole. Yet while most markets have continued this evolution in increasingly sophisticated
forms, the ground lease market has remained unchanged over the decades and out of step with
current market conventions.
Into this large market gap, we launched SAFE with two other skilled investors, a sovereign wealth fund
and private endowment backed fund. iStar owns just under 40% of the public company shares and
is the outside manager of SAFE, so we have a very large vested interest in its success and will continue
to work to grow it into a meaningful contributor to our earnings.
In addition to focusing on the new, we are also making progress on the old.
During 2017, we put an immense amount of work into various legacy assets that have been in our
portfolio since the recession. Our strong results for the year, net income of $1.56 per share and adjusted
income of $2.57 per share, benefitted from significant positive outcomes in the legacy book. Our
strategy over the past few years has been to generate profits from three main sources: our finance
business in the form of interest income, our net lease business in the form of operating lease income,
and from our legacy business in the form of gains resulting from our reimagining and repositioning assets
we took control of during the downturn. Overall, we have been quite successful, generating sizable
earnings growth and full-year 2017 adjusted earnings that represented a significant return on book
value. Yet, our share price declined almost 9% last year, a very disappointing result in the face of
these stellar earnings results. We must ask ourselves what we need to do differently so this disconnect
does not repeat itself.
The first part of the equation is straightforward — continue to generate strong earnings. This will be
helped by the fact that we will recognize over $75 million of adjusted earnings in 2018 that we were not
able to recognize in prior years, but are now required to recognize in 2018. GAAP will add these to
retained earnings rather than running them through the income statement, but as a shareholder, they
are indeed earnings that should be considered as return on our invested capital and will appear
in our adjusted earnings metric. We also expect to continue to monetize increasing amounts of legacy
assets and harvest solid gains on these sales during the year. In addition, we are focused on
deploying our significant cash balances ($658 million at year end) in new investments to generate
earnings well above what we earn on cash sitting in the bank.
The second part of the equation is a bit trickier — getting the markets excited about our company and
having our share price reflect its full value. Generating high returns on equity from a combination
of interest income, net lease income and asset sale gains has driven earnings for the past three years,
and we have retired some 35% of total shares during this period to amplify the impact of those returns
to shareholders. But it is also increasingly clear that earnings alone in the absence of asset growth
and a more clearly defined path forward will not trade at an appropriate multiple. Earlier this year,
we hired Marcos Alvarado as our new Chief Investment Officer to bring a renewed focus to our core
businesses. We made promising strides in the fourth quarter of 2017, with new loan originations exceeding
$400 million, and we believe that we can continue to push this momentum into 2018 and beyond.
So this is where we find ourselves now. After an initial decade of true innovation and market leadership
in multiple investment areas, we want to take back that mantle and move forward as an innovator
once more, delivering superior returns on the back of strong earnings, a unique platform and team,
and a renewed focus on growth. We thank you for helping us get there.
Jay Sugarman
Chairman & Chief Executive Officer
Highlights
Strong earnings
performance
iStar has closed the books on another significant
year of earnings growth, recognizing net income of
$111 million and adjusted net income of $215 million
in 2017. On a per share basis, earnings reached
$1.56 and $2.57 on an adjusted basis. This brings
aggregate earnings over the past three years to a
total of $1.54 per share and adjusted earnings of
$4.37 per share.
$2.57
$1.56
$1.15
Net Income
Adjusted Income
$0.60
$0.35
($0.62)
F Y 2015
F Y 2016
F Y 2017
Total Return
iStar
S&P 500
S&P 500 Financials
250
200
150
100
2012
2013
2014
2015
2016
2017
Launched a
revolutionary new
company, Safety, Income
& Growth (NYSE: SAFE)
iStar successfully IPO’d Safety, Income & Growth
Inc. (NYSE: SAFE), the first and only publicly traded
company focused on building a diversified portfolio
of ground leases. SAFE offers investors a compelling
combination of the safest position in a real estate
capital structure, compounding inflation-protected
income growth, and outsized capital appreciation.
iStar is SAFE’s founder, manager, and its largest
shareholder.
Transformative $2.0B
capital markets
transaction
The comprehensive $2.0 billion capital markets
transaction in the third quarter of 2017 helped to
transform iStar’s financial position. Effectively,
this extended the weighted average maturity by
nearly 1.5 years leaving us with no debt maturities
until July 2019, lowered iStar’s cost of capital by an
estimated 35bps, and improved earnings and fixed
charge coverage.
Upgraded by all
3 rating agencies
In 2017, iStar received rating upgrades from all three
major rating agencies: S&P raised its corporate
rating from B+ to BB-, Moody’s raised its rating from
B2 to B1, and Fitch raised its rating from B+ to BB-.
This achievement was driven by a proven track
record of earnings growth and a strong debt and
liquidity profile.
Harvesting value
from legacy assets
Since 2012, the Company has generated $2.5 billion
of proceeds from the sale of legacy assets and
recorded net gains of approximately $700 million.
In 2017, iStar realized $360 million of proceeds from
its legacy assets and plans to accelerate its pace in
2018. Additionally, iStar has hired Andy Richardson
as President of its Land Portfolio, who will focus
on driving value in our longer-lived land and
development assets.
Looking ahead to
the future of core
business growth
iStar renewed its focus on growing its core
businesses of real estate finance and net lease.
At the beginning of the year, Marcos Alvarado
was hired as the Chief Investment Officer and will
lead iStar’s efforts to execute on its core strategy.
In the fourth quarter, iStar saw new loan originations
reach $457 million and will look to continue this
momentum into 2018.
Financial Highlights
Consolidated Statements of Operations
FOR THE TWELVE MONTHS ENDED DECEMBER 31
(In thousands except share and per share data)
Revenues:
Operating lease income
Interest income
Other income
Land development revenue
Costs and Expenses:
Interest expense
Real estate expenses
Land development cost of sales
Depreciation and amortization
General and administrative
General and administrative — stock-based compensation
(Recovery of) provision for 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
Earnings from equity method investments
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 and redeemable noncontrolling interests
Preferred dividends
Net (income) loss allocable to HPU holders and Participating Security holders
Net income (loss) allocable to common shareholders (GAAP)
Weighted average number of common shares — Basic
Weighted average number of common shares — Diluted
Basic EPS
Diluted EPS
2017
2016
2015
$ 187,684
$ 191,180
$ 211,207
106,548
129,153
134,687
188,091
196,879
46,514
88,340
49,924
100,216
$ 679,202
$ 455,187
$ 496,034
$ 194,686
$ 221,398
$ 224,639
147,617
180,916
49,033
80,070
18,812
(5,828 )
32,379
20,954
137,522
146,509
62,007
51,660
73,138
10,889
(12,514)
14,484
5,883
67,382
62,045
69,264
12,013
36,567
10,524
6,374
$ 718,639
$ 564,467
$ 635,317
$
(39,437)
$ (109,280 )
$ (139,283)
(14,724)
13,015
(1,619)
77,349
(281)
32,153
$
(41,146)
$
(33,550 )
$
(107,411)
948
10,166
(7,639)
$
(40,198 )
$
(23,384 )
$ (115,050 )
4,939
123,418
18,270
–
92,049
105,296
15,077
–
93,816
$ 180,208
$ 100,182
$
(6,157)
(4,526)
(64,758 )
–
(4,876)
(51,320 )
(14 )
3,722
(51,320 )
1,080
$ 110,924
$
43,972
$
(52,675)
71,021
71,021
1.56
1.56
$
$
73,453
73,834
0.60
0.60
$
$
84,987
84,987
(0.62)
(0.62)
$
$
Reconciliation of Net Income to Adjusted Income
FOR THE TWELVE MONTHS ENDED DECEMBER 31
2017
2016
2015
(In thousands except share and per share data)
Net income (loss) allocable to Common Shareholders
Add: Depreciation and amortization
Add: (Recovery of) provision for loan losses
Add: Impairment of assets
Add: Stock-based compensation expense
Add: Loss on early extinguishment of debt
Add: Non-cash interest expense of discount on senior convertible notes
Add: Non-cash preferred stock redemption premium
Less: Losses on charge-offs and dispositions
HPU/Participating Security allocation adjustment
Adjusted income (loss) allocable to common shareholders
Weighted average common shares outstanding for basic earnings per common share
Adjusted income allocable to common shareholders per share
Weighted average common shares outstanding for diluted earnings per common share
Adjusted income allocable to common shareholders per share
$ 110,924
60,828
(5,828)
32,379
18,812
3,065
1,255
16,314
(23,130 )
–
$ 214,619
71,021
$
3.02
87,028
$
2.57
$ 43,972
$ (52,675)
64,447
(12,514)
18,999
10,889
1,619
–
–
(14,827)
(23)
$ 112,562
73,453
$
1.53
114,102
$
1.15
72,132
36,567
18,509
12,013
281
–
–
(55,437)
(1,706)
$ 29,684
84,987
$
0.35
85,395
$
0.35
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________________________________________________________________
FORM 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2017
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 1-15371
_______________________________________________________________________________
iStar Inc.
(Exact name of registrant as specified in its charter)
Maryland
(State or other jurisdiction of
incorporation or organization)
1114 Avenue of the Americas, 39th Floor
New York, NY
(Address of principal executive offices)
95-6881527
(I.R.S. Employer
Identification Number)
10036
(Zip code)
Registrant's telephone number, including area code: (212) 930-9400
_______________________________________________________________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each class:
Common Stock, $0.001 par value
8.00% Series D Cumulative Redeemable
Preferred Stock, $0.001 par value
7.65% Series G Cumulative Redeemable
Preferred Stock, $0.001 par value
7.50% Series I Cumulative Redeemable
Preferred Stock, $0.001 par value
Name of Exchange on which registered:
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
Title of each class:
4.50% Series J Convertible Perpetual
Preferred Stock, $0.001 par value
Name of Exchange on which registered:
N/A
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes
No
Table of Contents
Indicate by check mark whether the registrant: (i) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding twelve months (or for such shorter period that the registrant was required to file such reports); and (ii) has been subject to such filing
requirements for the past 90 days. Yes
No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was
required to submit and post such files). Yes
No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an
emerging growth company. See definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in
Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated fil
er
Non-accelerated filer
(Do not check if a
smaller reporting company)
Smaller reporting com
pany
Emerging growth
company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes
No
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any
new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
As of June 30, 2017 the aggregate market value of iStar Inc. common stock, $0.001 par value per share, held by non-affiliates (1) of the registrant was
approximately $833 million, based upon the closing price of $12.04 on the New York Stock Exchange composite tape on such date.
As of February 22, 2018, there were 67,539,717 shares of common stock outstanding.
(1) For purposes of this Annual Report only, includes all outstanding common stock other than common stock held directly by the registrant's directors
and executive officers.
1.
Portions of the registrant's definitive proxy statement for the registrant's 2018 Annual Meeting, to be filed within 120 days after the close of the
registrant's fiscal year, are incorporated by reference into Part III of this Annual Report on Form 10-K.
DOCUMENTS INCORPORATED BY REFERENCE
Table of Contents
TABLE OF CONTENTS
PART I
Item 1.
Business
Item 1a.
Risk Factors
Item 1b.
Unresolved Staff Comments
Item 2.
Item 3.
Item 4.
PART II
Item 5.
Item 6.
Item 7.
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrant's Equity and Related Share Matters
Selected Financial Data
Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 7a.
Quantitative and Qualitative Disclosures about Market Risk
Item 8.
Item 9.
Financial Statements and Supplemental Data
Changes and Disagreements with Registered Public Accounting Firm on Accounting and Financial
Disclosure
Item 9a.
Controls and Procedures
Item 9b.
PART III
Other Information
Item 10.
Directors, Executive Officers and Corporate Governance of the Registrant
Item 11.
Item 12.
Item 13.
Item 14.
PART IV
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships, Related Transactions and Director Independence
Principal Registered Public Accounting Firm Fees and Services
Item 15.
Exhibits, Financial Statement Schedules and Reports on Form 8-K
Item 16.
SIGNATURES
Form10-K Summary
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Table of Contents
Item 1. Business
PART I
Explanatory Note for Purposes of the "Safe Harbor Provisions" of Section 21E of the Securities Exchange Act of 1934, as
amended
Certain statements in this report, other than purely historical information, 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 of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"). Forward-looking statements are included with respect to, among other things, iStar Inc.'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 iStar Inc. believes might cause such
differences are discussed in the section entitled, "Risk Factors" in Part I, Item 1a of this Form 10-K or otherwise accompany the
forward-looking statements contained in this Form 10-K. 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 Form 10-K.
Overview
iStar Inc. (references to the "Company," "we," "us" or "our" refer to iStar Inc.) finances, invests in and develops real estate
and real estate related projects as part of its fully-integrated investment platform. The Company also provides management services
for its ground lease and net lease equity method investments. 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 four primary business segments are real estate finance, net lease, operating properties
and land and development.
Real Estate Finance: The real estate finance portfolio is comprised of senior and mezzanine 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 subordinated 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.
Net Lease: 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 geographic
location. In addition to net lease properties owned by the Company, the Company partnered with a sovereign wealth fund to form
a venture to acquire and develop net lease assets (the "Net Lease Venture"). The Company invests in new net lease investments
primarily through the Net Lease Venture, in which it holds a non-controlling 51.9% interest. In 2017, the Company also conceived
and ultimately launched a new, publicly traded REIT focused exclusively on the ground lease ("Ground Lease") asset class called
Safety, Income & Growth Inc. ("SAFE"). We believe that SAFE is the first publicly-traded company formed primarily to acquire,
own, manage, finance and capitalize Ground Leases. Ground Leases generally represent ownership of the land underlying
commercial real estate projects that is triple net leased by the fee owner of the land to the owners/operators of the real estate
projects built thereon. As of December 31, 2017, we owned approximately 37.6% of SAFE's common stock outstanding which
had a market value of $120.2 million at that date. We also serve as SAFE's external manager pursuant to a management agreement.
Operating 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 its transitional properties with the objective of maximizing their value through the infusion of capital and/or
concentrated 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 the Company's strategy is to sell individual condominium units through retail distribution channels.
1
Table of Contents
Land & Development: 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 United States. Master planned communities
represent large-scale residential projects that the Company will entitle, plan and/or develop and may sell through retail channels
to homebuilders 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 commercial real estate
developers, or may sell the properties.
The Company's primary sources of revenues are operating lease income, which is comprised of the rent and reimbursements
that tenants pay to lease the Company's properties, interest income, which is the interest that borrowers pay on loans, and land
development revenue from lot and parcel sales. The Company primarily generates income through a “spread” or “margin,” which
is the difference between the revenues net of property related expenses generated from leases and loans and interest expense. In
addition, the Company generates income from sales of its real estate and income from equity in earnings of its unconsolidated
ventures.
Company History and Recent Developments
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 lending and leasing transactions, as well as
through corporate acquisitions. During the economic downturn, the composition of the Company's portfolio changed as loans
were repaid and the Company acquired title to assets of defaulting borrowers. The composition of the Company's real estate
portfolio expanded to include operating properties and land and development assets. The Company has been originating new
lending and net lease investments, repositioning or redeveloping its transitional operating properties and progressing on the
entitlement, development and sales of its land and development assets. The Company intends to continue these efforts, with the
objective of having these assets contribute positively to earnings in the future. The Company's business segments are discussed
further in "Industry Segments."
Financing Strategy
The Company uses leverage to enhance its return on assets. In the third and fourth quarters of 2017, we completed a
comprehensive set of capital markets transactions that addressed all parts of our capital structure, resulting in our having:
•
•
•
•
•
•
•
repaid or refinanced all of our 2017 and 2018 corporate debt maturities, leaving no corporate debt maturities until July
2019;
extended our weighted average debt maturity by 1.5 years to 4.0 years;
reduced annual expenses;
lowered our cost of capital;
established new banking relationships;
increased liquidity to pursue new investment opportunities; and
received upgrades in our corporate credit ratings from all three major ratings agencies, which we expect will positively
impact the marginal cost of our future borrowings and broaden our set of investment opportunities.
Going forward, the Company will seek to raise capital through a variety of means, which may include unsecured and secured
debt financing, debt refinancings, asset sales, sales of interests in business lines, issuances of equity, joint ventures and other third
party capital arrangements. A more detailed discussion of the Company's current liquidity and capital resources is provided in
Item 7—"Management's Discussion and Analysis of Financial Condition and Results of Operations."
Investment Strategy
Our strategy is to continue to focus on our net lease and real estate finance businesses to find selective investment opportunities
in these core businesses. In addition, we will continue to monetize our commercial and residential operating properties as well as
our land portfolio.
2
Table of Contents
In originating new investments, the Company's strategy is to focus on the following:
• Targeting the origination of custom-tailored mortgage, corporate and lease financings where customers require flexible
financial solutions and "one-call" responsiveness;
• Avoiding commodity businesses where there is significant direct competition from other providers of capital;
• Developing direct relationships with borrowers and corporate customers in addition to sourcing transactions through
intermediaries;
• Adding value beyond simply providing capital by offering borrowers and corporate customers specific lending expertise,
flexibility, certainty of closing and continuing relationships beyond the closing of a particular financing transaction;
• Taking advantage of market anomalies in the real estate financing markets when, in the Company's view, credit is mispriced
by other providers of capital; and
• Evaluating relative risk adjusted returns across multiple investment markets.
Underwriting Process
The Company reviews investment opportunities with its investment professionals, as well as representatives from its legal,
credit, risk management and capital markets departments. The Company has developed a process for screening potential investments
called the Six Point Methodologysm. Through this proprietary process, the Company internally evaluates an investment opportunity
by: (1) evaluating the source of the opportunity; (2) evaluating the quality of the collateral, corporate credit or lessee, as well as
the market and industry dynamics; (3) evaluating the borrower equity, corporate sponsorship and/or guarantors; (4) determining
the optimal legal and financial structure for the transaction given its risk profile; (5) performing an alternative investment test;
and (6) evaluating the liquidity of the investment. Professionals from all disciplines throughout the entire origination process
evaluate investments, from the initial consideration of the opportunity, utilizing the Six Point Methodology,sm through the
preparation and distribution of an approval memorandum for the Company's internal investment committee and/or Board of
Directors and into the documentation and closing process.
Any commitment to make an investment of $25 million or less in any transaction or series of related transactions requires
the approval of the Chief Executive Officer and Chief Investment Officer. Any commitment in excess of $25 million but less than
or equal to $60 million requires the further approval of the Company's internal investment committee, consisting of senior
management representatives from all of the Company's key disciplines. Any commitment in excess of $60 million, and any strategic
investment such as a corporate merger, acquisition or material transaction involving the Company's entry into a new line of business,
requires the approval of the Board of Directors.
Hedging Strategy
The Company finances its business with a combination of fixed-rate and variable-rate debt and its asset base consists of
fixed-rate and variable-rate investments. Its variable-rate assets and liabilities are intended to be matched against changes in
variable interest rates. This means that as interest rates increase, the Company earns more on its variable-rate lending assets and
pays more on its variable-rate debt obligations and, conversely, as interest rates decrease, the Company earns less on its variable-
rate lending assets and pays less on its variable-rate debt obligations. When the Company's variable-rate debt obligations differ
from its variable-rate lending assets, the Company may utilize derivative instruments to limit the impact of changing interest rates
on its net income. The Company also uses derivative instruments to limit its exposure to changes in currency rates in respect of
certain investments denominated in foreign currencies. The derivative instruments the Company uses are typically in the form of
interest rate swaps, interest rate caps and foreign exchange contracts.
3
Table of Contents
Portfolio Overview
As of December 31, 2017, based on carrying values gross of accumulated depreciation and general loan loss reserves, our
total investment portfolio has the following characteristics:
Asset Type
4
Table of Contents
As of December 31, 2017, based on carrying values gross of accumulated depreciation and general loan loss reserves, our
total investment portfolio has the following property/collateral type and geographic characteristics ($ in thousands):
Property/Collateral Types
Real Estate
Finance
Net
Lease
Operating
Properties
Land and
Development
Total
% of
Total
Land and Development
$
— $
— $
— $
932,547
$
932,547
Office / Industrial
Mixed Use / Mixed Collateral
Entertainment / Leisure
48,900
306,625
673,424
—
—
489,497
Condominium
Hotel
Other Property Types
Retail
Ground Leases(1)
Strategic Investments
Total
421,787
291,929
223,458
25,456
—
—
—
—
—
57,348
129,154
—
128,368
196,667
—
48,519
104,415
11,837
138,928
—
—
—
—
—
—
—
—
—
—
—
850,692
503,292
489,497
470,306
396,344
235,295
221,732
129,154
13,618
22.1%
20.1%
11.9%
11.5%
11.1%
9.3%
5.5%
5.2%
3.0%
0.3%
$ 1,318,155
$ 1,349,423
$
628,734
$
932,547
$ 4,242,477
100.0%
Geographic Region
Real Estate
Finance
Net
Lease
Operating
Properties
Land and
Development
Total
% of
Total
Northeast
West
Southeast
Southwest
Central
Mid-Atlantic
Various(2)
Strategic Investments(2)
Total
$
798,357
$
414,373
$
47,557
$
268,953
$ 1,529,240
38,137
181,074
93,509
181,621
—
25,457
—
286,222
253,960
162,684
79,701
149,618
2,865
—
66,398
140,635
256,248
82,161
35,735
—
—
366,672
114,266
22,292
31,500
128,864
—
—
757,429
689,935
534,733
374,983
314,217
28,322
13,618
36.0%
17.9%
16.3%
12.6%
8.8%
7.4%
0.7%
0.3%
$ 1,318,155
$ 1,349,423
$
628,734
$
932,547
$ 4,242,477
100.0%
_______________________________________________________________________________
(1)
(2)
Primarily represents the market value of our equity method investment in SAFE.
Strategic investments and the various category include $9.2 million of international assets.
5
Table of Contents
Industry Segments
The Company has four business segments: Real Estate Finance, Net Lease, Operating Properties and Land and Development.
The following describes the Company's reportable segments as of December 31, 2017 ($ in thousands):
Real Estate
Finance
Net Lease
Operating
Properties
Land and
Development
Corporate /
Other(1)
Total
Real estate, at cost
$
Less: accumulated depreciation
Real estate, net
Real estate available and held for sale
Total real estate
Land and development, net
Loans receivable and other lending
investments, net
1,300,655
Other investments
Total portfolio assets
— $ 1,108,051
(292,268)
815,783
—
—
—
—
—
—
815,783
—
—
$
521,385
(55,137)
466,248
68,588
534,836
—
—
$
— $
—
—
—
—
860,311
—
63,855
— $ 1,629,436
(347,405)
— 1,282,031
—
—
68,588
— 1,350,619
—
860,311
— 1,300,655
13,618
321,241
—
205,007
38,761
$ 1,300,655
$ 1,020,790
$
573,597
$
924,166
$
13,618
$ 3,832,826
_______________________________________________________________________________
(1)
Corporate/Other includes certain joint venture and strategic investments that are not included in the other reportable segments. See Item 8—"Financial
Statements and Supplemental Data—Note 7" for further detail on these investments.
Additional information regarding segment revenue and profit information as well as prior period information is presented
in Item 8—"Financial Statements and Supplemental Data—Note 17" and a discussion of operating results is presented in Item 7
—"Management's Discussion and Analysis of Financial Condition and Results of Operations."
Real Estate Finance
The Company's real estate finance business targets large, sophisticated investors by providing one-stop capabilities that
encompass financing alternatives ranging from full envelope senior loans to mezzanine and preferred equity capital positions. The
Company's real estate finance portfolio consists of senior mortgage loans that are secured by commercial and residential real estate
assets where the Company is the first lien holder, subordinated mortgage loans that are secured by second lien or junior interests
in commercial and residential real estate assets, and corporate/partnership loans, which represent mezzanine or subordinated loans
to entities for which the Company does not have a lien on the underlying asset, but may have a pledge of underlying equity
ownership of such assets. The Company's real estate finance portfolio includes loans on stabilized and transitional properties and
ground-up construction projects. In addition, the Company has preferred equity investments and debt securities classified as other
lending investments.
6
Table of Contents
The Company's real estate finance portfolio included the following ($ in thousands):
$
Performing loans:
Senior mortgages
Corporate/partnership loans
Subordinate mortgages
Subtotal
Non-performing loans(1):
Senior mortgages
Corporate/partnership loans
Subordinate mortgages
Subtotal
Total carrying value of loans
Other lending investments—securities
Total carrying value
General reserve for loan losses
Total loans receivable and other lending investments, net $
As of December 31,
2017
2016
Total
% of Total
Total
% of Total
709,809
332,387
9,495
1,051,691
32,825
144,063
—
176,888
1,228,579
89,576
1,318,155
(17,500)
1,300,655
53.9% $
25.2%
0.7%
79.8%
2.5%
10.9%
—%
13.4%
93.2%
6.8%
100.0%
$
854,805
333,244
14,078
1,202,127
36,159
144,674
10,863
191,696
1,393,823
79,916
1,473,739
(23,300)
1,450,439
58.0%
22.6%
1.0%
81.6%
2.5%
9.8%
0.7%
13.0%
94.6%
5.4%
100.0%
_______________________________________________________________________________
(1)
Non-performing loans are presented net of asset-specific loan loss reserves of $61.0 million and $62.2 million, respectively, as of December 31, 2017
and 2016.
Summary of Portfolio Characteristics—As of December 31, 2017, the Company's performing loans and other lending
investments had a weighted average loan to value ratio of 67%. Additionally, the Company's performing loans were comprised
of 22% fixed-rate loans and 78% variable-rate loans that had a weighted average yield of 9.8% and a weighted average remaining
term of 2.0 years.
Portfolio Activity—During the year ended December 31, 2017, the Company invested $618.5 million (including capitalized
deferred interest) in its real estate finance portfolio and received repayments of $722.0 million (including the receipt of previously
capitalized deferred interest).
7
Table of Contents
Summary of Interest Rate Characteristics—The Company's loans receivable and other lending investments had the following
interest rate characteristics ($ in thousands):
As of December 31,
2017
2016
Fixed-rate loans and other lending investments
Variable-rate loans(1)
Non-performing loans(2)
Total carrying value
Carrying
Value
%
of Total
$ 251,185
890,082
176,888
19.1%
67.5%
13.4%
1,318,155
100.0%
General reserve for loan losses
Total loans receivable and other lending
investments, net
(17,500)
$ 1,300,655
Weighted
Average
Accrual Rate
Carrying
Value
%
of Total
Weighted
Average
Accrual Rate
9.4%
7.3%
N/A
19.2%
67.8%
13.0%
100.0%
9.4% $ 282,810
8.2%
N/A
999,233
191,696
1,473,739
(23,300)
$ 1,450,439
__________________________________________________________________________
(1)
As of December 31, 2017 and 2016, includes $416.6 million and $657.9 million, respectively, of loans with a weighted average LIBOR floor of 0.3%
and 0.2%, respectively.
Non-performing loans are presented net of asset-specific loan loss reserves of $61.0 million and $62.2 million, respectively, as of December 31, 2017
and 2016.
(2)
Summary of Maturities—As of December 31, 2017 the Company's loans receivable and other lending investments had the
following maturities ($ in thousands):
Year of Maturity
2018
2019
2020
2021
2022
2023 and thereafter
Total performing loans and other lending investments
Non-performing loans(1)
Total carrying value
General reserve for loan losses
Total loans receivable and other lending investments, net
Number of
Loans
Maturing
Carrying
Value
%
of Total
17
10
3
4
—
5
39
5
44
$
$
$
$
583,623
463,541
16,907
7,597
—
69,599
1,141,267
176,888
1,318,155
(17,500)
1,300,655
44.2%
35.2%
1.3%
0.6%
—%
5.3%
86.6%
13.4%
100.0%
_______________________________________________________________________________
(1)
Non-performing loans are presented net of asset-specific loan loss reserves of $61.0 million.
Net Lease
The Company's net lease business seeks to create stable cash flows through long-term net leases primarily to single tenants
on its properties. The Company targets mission-critical facilities leased on a long-term basis to tenants, offering structured solutions
that combine its capabilities in underwriting, lease structuring, asset management and build-to-suit construction. Leases typically
provide for expenses at the facility to be paid by the tenant on a triple net lease basis. Under a typical net lease agreement, the
tenant agrees to pay a base monthly operating lease payment and most or all of the facility operating expenses (including taxes,
utilities, maintenance and insurance). The Company generally intends to hold its net lease assets for long-term investment. However,
the Company may dispose of assets if it deems the disposition to be in the Company's best interests.
In 2014, the Company partnered with a sovereign wealth fund to form a venture to acquire and develop net lease assets and
gave a right of first refusal to the venture on all new net lease investments that meet specified investment criteria (refer to Note 7
in our consolidated financial statements for more information on our Net Lease Venture). The Net Lease Venture's investment
period expires on March 31, 2018. The term of the Net Lease Venture extends through February 13, 2022, subject to two, one-
year extension options at the discretion of the Company and its partner.
8
Table of Contents
In April 2017, institutional investors acquired from us a controlling interest in SAFE's predecessor, which held our Ground
Lease business (the "Acquisition Transactions"). Our Ground Lease business was a component of our net lease segment and
consisted of 12 properties subject to long-term net leases including seven Ground Leases and one master lease (covering five
properties). As a result of the Acquisition Transactions, we deconsolidated the 12 properties and the associated financing. We
account for our investment in SAFE as an equity method investment (refer to Note 7). We have an exclusivity agreement with
SAFE pursuant to which we agreed, subject to certain exceptions, that we will not acquire, originate, invest in, or provide financing
for a third party’s acquisition of, a Ground Lease unless we have first offered that opportunity to SAFE and a majority of its
independent directors has declined the opportunity.
In June 2017, SAFE completed its initial public offering raising $205.0 million in gross proceeds and concurrently completed
a $45.0 million private placement to us, its largest shareholder. Subsequent to the initial public offering and through December
31, 2017, we purchased 1.8 million shares of SAFE's common stock for $34.1 million in open market transactions, at an average
cost of $18.85 per share. As of December 31, 2017, we owned approximately 37.6% of SAFE's common stock outstanding which
had a market value of $120.2 million at that date.
As of December 31, 2017, our consolidated net lease portfolio totaled $1.1 billion gross of $292.3 million of accumulated
depreciation. Our net lease portfolio, including the carrying value of our equity method investments in SAFE and the Net Lease
Venture, totaled $1.3 billion. The table below provides certain statistics for our net lease portfolio and net lease equity method
investments.
Ownership %
Net book value (millions)
Accumulated depreciation (millions)
Gross carrying value (millions)
Occupancy
Square footage (thousands)
Weighted average lease term (years)
Weighted average yield
Consolidated
Real Estate
SAFE
Net Lease
Venture
100.0%
37.6%
51.9%
$
$
816
292
1,108
$
$
490
7
497
(1)
$
$
(1)
597
48
645
97.9%
11,322
14.0
8.9%
100.0%
3,849
60.6
5.0% (2)
100.0%
4,238
19.0
8.5%
_______________________________________________________________________________
(1) Net book value represents the net book value of real estate and real estate-related intangibles.
(2) Represents the annualized asset yield.
Portfolio Activity—During the year ended December 31, 2017, the Company acquired one net lease asset for $6.6 million
and invested an aggregate $4.9 million of tenant improvements and capital expenditures on its existing net lease assets. In addition,
during the year ended December 31, 2017, the Company made contributions of $49.2 million to the Net Lease Venture and received
distributions of $26.0 million from the Net Lease Venture. During the year ended December 31, 2017, the Company recognized
$87.5 million in income from sales of real estate and received proceeds of $175.4 million from its net lease portfolio (refer to Note
4 in the Company's consolidated financial statements for further details on consolidated net lease asset activities).
9
Table of Contents
Summary of Lease Expirations—As of December 31, 2017, lease expirations on the Company's net lease assets, excluding
our equity method investments in SAFE and the Net Lease Venture, are as follows ($ in thousands):
Year of Lease Expiration
Number of
Leases
Expiring
Annualized In-
Place
Operating
Lease Income
% of In-Place
Operating
Lease Income
% of Total
Revenue(1)
Square Feet of
Leases Expiring
(in thousands)
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028 and thereafter
Total
Weighted average remaining
lease term (in years)
$
2,323
582
1,489
3,076
9,709
4,573
5,272
—
10,020
2,796
68,339
$
108,179
2
2
1
2
3
2
1
—
4
2
10
29
14.0
2.1%
0.5%
1.4%
2.8%
9.0%
4.2%
4.9%
—%
9.3%
2.6%
63.2%
100.0%
0.6%
0.1%
0.4%
0.7%
2.4%
1.1%
1.3%
—%
2.4%
0.7%
16.6%
26.3%
119
61
115
144
584
67
200
—
638
892
8,260
11,080
_______________________________________________________________________________
(1)
Reflects the percentage of annualized operating lease income for leases in-place as a percentage of annualized total revenue.
10
Table of Contents
Operating 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 its
transitional properties with the objective of maximizing their value through the infusion of capital and/or intensive asset
management efforts. Upon stabilization, the Company will generally look to monetize these assets if favorable conditions exist
for maximizing value. 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.
The Company's operating properties portfolio, including equity method investments, included the following ($ in thousands):
Commercial
As of December 31,
2016
2017
Residential
As of December 31,
2016
2017
Real estate, at cost
Less: accumulated depreciation
Real estate, net
Real estate available and held for sale
Other investments
Total portfolio assets
$
$
$
521,385
(55,137)
466,248
$
$
20,069
38,761
522,337
(46,175)
476,162
$
$
—
3,577
— $
—
— $
48,519
—
—
—
—
82,480
6
525,078
$
479,739
$
48,519
$
82,486
Commercial Properties
The Company classifies commercial properties as either stabilized or transitional. In determining whether a commercial
property is stabilized or transitional, the Company analyzes certain performance metrics, primarily occupancy and yield. Stabilized
commercial properties generally have occupancy levels above 80% and/or generate yields resulting in a sufficient return based
upon the properties’ risk profiles. Transitional commercial properties are generally those properties that do not meet these criteria.
The table below provides certain statistics for our commercial operating property portfolio.
Commercial Operating Property Statistics
($ in millions)
Stabilized Operating
Transitional Operating
Total
December 31,
2017
December 31,
2016
December 31,
2017
December 31,
2016
December 31,
2017
December 31,
2016
Gross book value ($mm)(1) $
427
$
337
$
153
$
189
$
580
$
Occupancy(2)
Yield
85%
6.0%
86%
8.5%
61%
3.7%
54%
1.5%
78%
5.5%
526
74%
5.5%
______________________________________________________________
(1)
(2)
Gross carrying value represents carrying value gross of accumulated depreciation.
Occupancy is as of December 31, 2017 and 2016.
Summary of Portfolio Characteristics—As of December 31, 2017, commercial properties within the operating properties
portfolio, including equity method investments, included 26 facilities, encompassing 4.1 million square feet located in 10 states.
Commercial properties include office, industrial and retail buildings along with hotels and marinas. The Company’s commercial
properties were primarily acquired through foreclosure or deed in lieu of foreclosure in connection with the resolution of loans.
Portfolio Activity—During the year ended December 31, 2017, the Company received $2.5 million of distributions from its
commercial operating property equity method investments. The Company also invested $27.7 million in its commercial operating
properties and made contributions of $36.3 million to its commercial operating property equity method investments.
11
Table of Contents
As of December 31, 2017, lease expirations on commercial properties within the operating properties portfolio, excluding
hotels, marinas and other investments, were as follows ($ in thousands):
Year of Lease Expiration
2018(2)
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028 and thereafter
Total
Number of
Leases
Expiring
Annualized In-
Place
Operating
Lease Income
% of In-Place
Operating
Lease Income
% of Total
Revenue(1)
Square Feet of
Leases Expiring
(in thousands)
121
$
52
41
27
45
8
9
8
14
38
15
5,568
2,028
2,617
9,410
3,888
1,180
1,497
1,683
2,372
6,364
3,758
378
$
40,365
13.8%
5.0%
6.5%
23.3%
9.6%
2.9%
3.7%
4.2%
5.9%
15.8%
9.3%
100.0%
1.3%
0.5%
0.6%
2.3%
0.9%
0.3%
0.4%
0.4%
0.6%
1.5%
0.9%
9.7%
328
129
132
71
308
64
144
48
416
130
155
1,925
Weighted average remaining
lease term (in years)
5.4
_______________________________________________________________________________
(1)
(2)
Reflects the percentage of annualized operating lease income for leases in-place as a percentage of annualized total revenue.
Includes office leases expiring in commercial properties as well as month-to-month and short term license agreements within our retail properties.
Residential Properties
Summary of Portfolio Characteristics—As of December 31, 2017, residential properties within the operating properties
portfolio included 6 residential projects with 34 units located within luxury condominium projects in major cities throughout the
United States.
Portfolio Activity—During the year ended December 31, 2017, the Company sold 23 residential condominiums (excluding
fractional units) for net proceeds of $35.3 million resulting in income from sales of real estate of $4.5 million. During the same
period, the Company invested $7.4 million of capital expenditures in its residential properties.
Land and Development
The Company's land and development portfolio included the following ($ in thousands):
Land and development, net
Other investments
Total
As of December 31,
2017
860,311
63,855
924,166
$
$
2016
945,565
84,804
1,030,369
$
$
Summary of Portfolio Characteristics—As of December 31, 2017, the Company's land and development portfolio, including
equity method investments, included 28 properties, comprised of eight master planned community ("MPC") projects, 14 infill
land parcels and six waterfront land parcels located throughout the United States. MPCs represent large-scale residential projects
that the Company has and/or will entitle, plan and/or develop and may sell through retail channels to home builders or in bulk.
The remainder of the Company’s land includes infill and waterfront parcels located in and around major cities that the Company
will develop, sell to or partner with commercial real estate developers. Waterfront parcels are generally entitled for residential
projects and urban infill parcels are generally entitled for mixed-use projects.
12
Table of Contents
Portfolio Activity—The following tables present a land and development portfolio rollforward and certain land and
development statistics.
Land and Development Portfolio Rollforward
(in millions)
Years Ended December 31,
2017
2016
$
$
945.6
(175.3)
Beginning balance(1)
Asset sales(2)
Asset transfers in (out)(3)
Capital expenditures
Other(4)
Ending balance(1)
_______________________________________________________________________
(1)
(2)
(3)
(4)
(28.1)
860.3
127.0
(8.9)
$
$
1,002.0
(68.9)
(90.7)
109.5
(6.3)
945.6
As of December 31, 2017 and 2016, excludes $63.9 million and $84.8 million, respectively, of equity method investments.
Represents gross book value of the assets sold, rather than proceeds received.
Assets transferred into land and development segment or out to another segment.
For the years ended December 31, 2017 and 2016, includes $20.5 million and $3.8 million, respectively, of impairments.
Land and Development Statistics
(in millions)
Years Ended December 31,
2017
2016
Land development revenue
Land development cost of sales
Land development revenue less cost of sales
Earnings from land and development equity method investments
Income from sales of real estate(1)
Total
$
$
$
196.9
$
180.9
16.0
$
7.3
—
23.3
$
88.3
62.0
26.3
30.0
8.8
65.1
_______________________________________________________________________________
(1) During the year ended December 31, 2016, we sold a land and development asset to a newly formed unconsolidated entity in which we own a 50.0% equity
interest and recognized a gain on sale of $8.8 million, reflecting our share of the interest sold.
13
Table of Contents
As of December 31, 2017, the Company had seven land and development projects in production, eight in development and
13 in the pre-development phase. The Company's land and development projects that contributed to revenues during the year
ended December 31, 2017 are listed below ($ in thousands):
Project
Land and development
Property
Type
Location
Anticipated
Sales
Completion
Date(1)
2017
Revenue
Units
Sold in
2017(2)
Cumulative
Units Sold
Estimated
Remaining
Units(2)
Prince
George's
County, MD
2017
$ 114,000
N/A
N/A
Bevard(3)
Naples Reserve
MPC
MPC
Naples, FL
2022
22,055
Monroe
Waterfront
Magnolia Green
MPC
Asbury
Park, NJ
Richmond,
VA
Sage Scottsdale
Spring Mountain Ranch Phase 2
& 3
Heath at Tetherow
Total land and development
Infill/Mixed
Use
Scottsdale,
AZ
MPC
MPC
Riverside,
CA
Bend, OR
2018
2026
2017
2020
2017
17,025
16,598
12,534
8,203
6,464
196,879
204
29
196
23
96
34
582
364
29
985
72
96
159
1,705
N/A
745
5
2,061
—
878
—
3,689
Land and development equity method investments(4)
Marina Palms(5)
Waterfront
Spring Mountain Ranch Phase 1
MPC
N. Miami
Beach, FL
Riverside,
CA
Other land and development
Various
equity method investments
Total land and development equity method investments
Total Land and Development Projects Contributing to Earnings
Various
Equity in
Earnings
Units
Sold in
2017(2)
Cumulative
Units Sold
Estimated
Remaining
Units(2)
2018
2017
Various
2,621
4,734
(63)
7,292
$ 204,171
200
52
N/A
252
834
433
435
N/A
868
2,573
35
—
N/A
35
3,724
_______________________________________________________________________________
(1)
Anticipated completion dates are subject to change as a result of factors that may be outside of the Company's control, such as economic conditions,
uncertainty with rezoning, obtaining governmental permits and approvals, concerns of community associations and reliance on third party contractors.
Units sold in 2017 excludes land bulk parcel sales. Estimated remaining units may include single-family lots, condos, multifamily rental units and hotel
keys, as applicable, for the respective properties and are subject to change.
Refer to Note 11.
These land and development projects are accounted for under the equity method of accounting.
Sales activity is the result of percentage of completion accounting at the joint venture during the year ended December 31, 2017.
(2)
(3)
(4)
(5)
Bevard
In connection with the resolution of litigation involving a dispute over the purchase and sale of approximately 1,250 acres
of land in Prince George’s County, Maryland ("Bevard"), during the year ended December 31, 2017, we recognized $114.0 million
of land development revenue (refer to Note 11).
Naples Reserve
Naples Reserve is a water-themed master planned community in Naples, FL built on 688 acres. The project comprises 1,100
lakefront residences across 22 interconnected lakes, including a 125-acre navigable recreation lake and adjacent resort-style amenity
center as its centerpiece. The community also includes a neighborhood, Parrot Cay, designated for custom homes constructed by
local builders in the Naples Market.
Naples Reserve sold 204 residential lots for $22.1 million of land development revenue during the year ended December
31, 2017.
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Monroe
Monroe is a 34 unit residential condominium development in Asbury Park, NJ. Monroe sold 29 condominium units for $17.0
million of land development revenue during the year ended December 31, 2017.
Magnolia Green
Magnolia Green is a 3,500 unit multi-generational master planned community just outside of Richmond, Virginia with
distinct phases designed for people in different life stages, from first home buyers to empty nesters. Built on nearly 1,900 acres,
Magnolia Green is a community with home designs from the area's top builders. The community’s amenity package features an
18-hole Jack Nicklaus designed golf course and a full-service golf clubhouse and aquatic center. There is also a tennis facility
which is currently under construction.
Magnolia Green sold 196 residential lots for $16.6 million of land development revenue during the year ended December
31, 2017.
Sage Scottsdale
Sage Scottsdale is an infill development project in Scottsdale, AZ comprised of 72 two- and three-bedroom condominiums.
The community is located next to the waterfront canal and Old Town Scottsdale and provides residents with a wide array of luxury
amenities such as a resort pool, clubhouse, fitness room and wine cellar / tasting room.
Sales at Sage Scottsdale commenced in 2015 and the project sold its remaining 23 condominiums for $12.5 million of land
development revenue during the year ended December 31, 2017.
Spring Mountain Ranch - Phase 1, 2 & 3
Spring Mountain Ranch is a 785-acre master planned community located four miles from Riverside, CA. Spring Mountain
Ranch offers convenient freeway access and proximity to local job centers. The community plan includes a total of 1,400 home
sites across several neighborhoods, designed with an emphasis on outdoor recreation with homes marketed towards first time,
move up and empty nester purchasers. In late 2013, the Company contributed a portion of its land and entered into a joint venture
with a national homebuilder to jointly develop residential lots in Phase 1 of the project, which was comprised of 435 homes. The
Company owned a noncontrolling 75.6% interest in Phase 1 of Spring Mountain Ranch, which was completed in 2017 and sold
its remaining 52 lots and generated the Company $4.7 million of earnings from equity method investments for the year ended
December 31, 2017. Phase 2A is wholly-owned by the Company and includes 315 lots within the Spring Mountain Ranch master
planned community and is fully covered under a lot takedown agreement with a national homebuilder. The lot take down agreement
requires the homebuilder to close on 32 lots per quarter for a fixed price. The Company sold 96 lots in Phase 2A for $8.2 million
of land and development revenue during the year ending December 31, 2017.
Heath at Tetherow
Tetherow is a 700-acre master planned community located in Bend, OR entitled for 378 residential lots, of which the Company
originally acquired 159 lots within the Heath neighborhood. Bend has access to a wide array of recreational activities such as
Mount Bachelor and the Cascade Mountains for skiing and hiking, as well as the Deschutes River for kayaking and fishing. In
addition, the community’s lodge was named “World’s #1 Resort” on Booking.com and its golf course was ranked among Golf
Digest’s “Top 100 Greatest Public Courses.”
Heath at Tetherow sold its remaining 34 residential lots for $6.5 million of land development revenue during the year ended
December 31, 2017.
Marina Palms
Marina Palms is a waterfront development in North Miami Beach, FL consisting of 468 residential condominium units
within two towers and a 110-slip full-service marina. It is the first luxury condominium and yacht club project in Miami in two
decades. Situated on 14 acres and over 750 feet of waterfront, Marina Palms offers views over the Intracoastal Waterway and
beyond to the Atlantic Ocean. The Company has partnered with local developers for the development of Marina Palms and
contributed its land in return for a 47.5% interest in the venture.
As of December 31, 2017, the 234 unit north tower has one unit remaining for sale and the 234 unit south tower has 34 units
remaining for sale.
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Policies with Respect to Other Activities
The Company's investment, financing and corporate governance policies (including conflicts of interests policies) are
managed under the ultimate supervision of the Company's Board of Directors. The Company can amend, revise or eliminate these
policies at any time without a vote of its shareholders. The Company intends to originate and manage investments in a manner
consistent with the requirements of the Internal Revenue Code of 1986, as amended (the "Code") for the Company to qualify as
a REIT.
Investment Restrictions or Limitations
The Company does not have any prescribed allocation among investments or product lines. Instead, the Company focuses
on corporate and real estate credit underwriting to develop an analysis of the risk/reward trade-offs in determining the pricing and
advisability of each particular transaction.
The Company believes that it is not, and intends to conduct its operations so as not to become, regulated as an investment
company under the Investment Company Act. The Investment Company Act generally exempts entities that are "primarily engaged
in purchasing or otherwise acquiring mortgages and other liens on and interests in real estate" (collectively, "Qualifying Interests").
The Company intends to rely on current interpretations of the Securities and Exchange Commission in an effort to qualify for this
exemption. Based on these interpretations, the Company, among other things, must maintain at least 55% of its assets in Qualifying
Interests and and at least 80% of its assets in Qualifying Interests and other "real estate-related assets" (such as mezzanine loans
and unsecured investments in real estate entities) combined. The Company's senior mortgages, real estate assets and certain of its
subordinated mortgages generally constitute Qualifying Interests. Subject to the limitations on ownership of certain types of assets
and the gross income tests imposed by the Code, the Company also may invest in the securities of other REITs, other entities
engaged in real estate activities or other issuers, including for the purpose of exercising control over such entities.
Competition
The Company operates in a competitive market. See Item 1a—Risk factors—"We compete with a variety of financing and
leasing sources for our customers," for a discussion of how we may be affected by competition.
Regulation
The operations of the Company are subject, in certain instances, to supervision and regulation by state and federal
governmental authorities and may be subject to various laws and judicial and administrative decisions imposing various
requirements and restrictions, which, among other things: (1) regulate credit granting activities; (2) establish maximum interest
rates, finance charges and other charges; (3) require disclosures to customers; (4) govern secured transactions; (5) set collection,
foreclosure, repossession and claims-handling procedures and other trade practices; (6) govern privacy of customer information;
and (7) regulate anti-terror and anti-money laundering activities. Although most states do not regulate commercial finance, certain
states impose limitations on interest rates and other charges and on certain collection practices and creditor remedies, and require
licensing of lenders and financiers and adequate disclosure of certain contract terms. The Company is also required to comply
with certain provisions of the Equal Credit Opportunity Act that are applicable to commercial loans.
In the judgment of management, existing statutes and regulations have not had a material adverse effect on the business
conducted by the Company. It is not possible at this time to forecast the exact nature of any future legislation, regulations, judicial
decisions, orders or interpretations, nor their impact upon the future business, financial condition or results of operations or
prospects of the Company.
The Company has elected and expects to continue to qualify to be taxed as a REIT under Section 856 through 860 of the
Code. As a REIT, the Company must generally distribute at least 90% of its net taxable income, excluding capital gains, to its
shareholders each year. In addition, the Company must distribute 100% of its net taxable income (including net capital gains) each
year to eliminate U.S. corporate federal income taxes payable by it. REITs are also subject to a number of organizational and
operational requirements in order to elect and maintain REIT qualification. These requirements include specific share ownership
tests and asset and gross income tests. If the Company fails to qualify as a REIT in any taxable year, the Company will be subject
to U.S. federal income tax (including, for taxable years prior to 2018, any applicable alternative minimum tax) on its net taxable
income at regular corporate tax rates. Even if the Company qualifies for taxation as a REIT, the Company may be subject to state
and local taxes and to U.S. federal income tax and excise tax on its undistributed income.
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Code of Conduct
The Company has adopted a code of conduct that sets forth the principles of conduct and ethics to be followed by our
directors, officers and employees (the "Code of Conduct"). The purpose of the Code of Conduct is to promote honest and ethical
conduct, compliance with applicable governmental rules and regulations, full, fair, accurate, timely and understandable disclosure
in periodic reports, prompt internal reporting of violations of the Code of Conduct and a culture of honesty and accountability. A
copy of the Code of Conduct has been provided to each of our directors, officers and employees, who are required to acknowledge
that they have received and will comply with the Code of Conduct. A copy of the Company's Code of Conduct has been previously
filed with the SEC and is incorporated by reference in this Annual Report on Form 10-K as Exhibit 14.0. The Code of Conduct is
also available on the Company's website at www.istar.com. The Company will disclose to shareholders material changes to its
Code of Conduct, or any waivers for directors or executive officers, if any, within four business days of any such event. As of
December 31, 2017, there have been no amendments to the Code of Conduct and the Company has not granted any waivers from
any provision of the Code of Conduct to any directors or executive officers.
Employees
As of February 22, 2018, the Company had 186 employees and believes it has good relationships with its employees. The
Company's employees are not represented by any collective bargaining agreements.
Other
In addition to this Annual Report on Form 10-K, the Company files quarterly and special reports, proxy statements and other
information with the SEC. Through the Company's corporate website, www.istar.com, the Company makes available free of charge
its annual proxy statement, annual reports to stockholders, annual reports on Form 10-K, quarterly reports on Form 10-Q, current
reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act
as soon as reasonably practicable after the Company electronically files such material with, or furnishes it to, the SEC. You may
also read and copy any document filed at the public reference facilities at 100 F Street, N.E., Washington, D.C. 25049. Please call
the SEC at (800) SEC-0330 for further information about the public reference facilities. These documents also may be accessed
through the SEC's electronic data gathering, analysis and retrieval system via electronic means, including on the SEC's homepage,
which can be found at www.sec.gov.
Item 1a. Risk Factors
In addition to the other information in this report, you should consider carefully the following risk factors in evaluating an
investment in the Company's securities. Any of these risks or the occurrence of any one or more of the uncertainties described
below could have a material adverse effect on the Company's business, financial condition, results of operations, cash flows and
market price of the Company's common stock. The risks set forth below speak only as of the date of this report and the Company
disclaims any duty to update them except as required by law. For purposes of these risk factors, the terms "our Company," "we,"
"our" and "us" refer to iStar Inc. and its consolidated subsidiaries, unless the context indicates otherwise.
Changes in general economic conditions may adversely affect our business.
Risks Related to Our Business
Our success is generally dependent upon economic conditions in the United States, and in particular, the geographic areas
in which our investments are located. Substantially all businesses, including ours, were negatively affected by the previous economic
recession and resulting illiquidity and volatility in the credit and commercial real estate markets. The commercial real estate and
credit markets remain volatile and it is not possible for us to predict whether these trends will continue in the future or quantify
the impact of these or other trends on our financial results. Deterioration in economic trends could have a material adverse effect
on our financial performance, liquidity and our ability to meet our debt obligations.
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Our credit ratings will impact our borrowing costs.
Our borrowing costs and our access to the debt capital markets depend significantly on our credit ratings. Our unsecured
corporate credit ratings from major national credit rating agencies are currently below investment grade. Having below investment
grade credit ratings increases our borrowing costs and caused restrictive covenants in our public debt instruments to become
operative. These restrictive covenants are described below in "Covenants in our indebtedness could limit our flexibility and
adversely affect our financial condition." These factors have adversely impacted our financial performance and will continue to
do so unless our credit ratings improve.
Covenants in our indebtedness could limit our flexibility and adversely affect our financial condition.
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 restriction on debt incurrence based upon the effect of the
debt incurrence on our fixed charge coverage ratio. 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 percentage of the bondholders. Limitations on our ability to incur new indebtedness under the fixed charge coverage
ratio may limit the amount of new investments we make.
In March 2015, we entered into a secured revolving credit facility with a maximum capacity of $250.0 million (our "2015
Secured Revolving Credit Facility") and we upsized the facility to $325.0 million in September 2017 and added additional lenders
to the syndicate. In June 2016, we entered into a senior secured credit facility with a maximum capacity of $450.0 million and in
August 2016 we upsized the facility to $500.0 million (our "2016 Senior Secured Credit Facility"). In September 2017, we reduced
the 2016 Senior Secured Credit Facility to $400.0 million. Our 2015 Secured Revolving Credit Facility and our 2016 Senior
Secured 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, our 2016 Senior Secured Credit Facility requires the Company to maintain collateral
coverage of at least 1.25x outstanding borrowings on the facility and our 2015 Secured Revolving Credit Facility requires us 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. In addition, for so long as we maintain our qualification as a REIT, our 2016 Senior Secured Credit
Facility and 2015 Secured Revolving Credit Facility permit us to distribute 100% of our REIT taxable income on an annual basis
(prior to deducting certain cumulative net operating loss carryforwards). We may not pay common dividends if the Company
ceases to qualify as a REIT.
Our 2016 Senior Secured Credit Facility and 2015 Secured 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. A default by us on our indebtedness
would have a material adverse effect on our business, liquidity and the market price of our common stock.
We have significant indebtedness and funding commitments and limitations on our liquidity and ability to raise capital may
adversely affect us.
Sufficient liquidity is critical to our ability to grow and to meet our scheduled debt payments and our funding commitments
to borrowers. We have relied on proceeds from the issuance of unsecured debt, secured borrowings, repayments from our loan
assets and proceeds from asset sales to fund our operations and meet our debt maturities, and we expect to continue to rely primarily
on these sources of liquidity for the foreseeable future. While we had access to various sources of capital in 2017, our ability to
access capital in 2018 and beyond will be subject to a number of factors, many of which are outside of our control, such as general
economic conditions, changes in interest rates and conditions prevailing in the credit and real estate markets. There can be no
assurance that we will have access to liquidity when needed or on terms that are acceptable to us. We may also encounter difficulty
in selling assets or executing capital raising strategies on acceptable terms in a timely manner, which could impact our ability to
make scheduled repayments on our outstanding debt. Failure to repay or refinance our borrowings as they come due would be an
event of default under the relevant debt instruments, which could result in a cross default and acceleration of our other outstanding
debt obligations. Failure to meet funding commitments could cause us to be in default of our financing commitments to borrowers.
Any of the foregoing could have a material adverse effect on our business, liquidity and the market price of our common stock.
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We may utilize derivative instruments to hedge risk, which may adversely affect our borrowing cost and expose us to other
risks.
The derivative instruments we may use are typically in the form of interest rate swaps, interest rate caps and foreign exchange
contracts. Interest rate swaps effectively change variable-rate debt obligations to fixed-rate debt obligations or fixed-rate debt
obligations to variable-rate debt obligations. Interest rate caps limit our exposure to rising interest rates. Foreign exchange contracts
limit or offset our exposure to changes in currency rates in respect of certain investments denominated in foreign currencies.
Our use of derivative instruments also involves the risk that a counterparty to a hedging arrangement could default on its
obligation and the risk that we may have to pay certain costs, such as transaction fees or breakage costs, if a hedging arrangement
is terminated by us. As a matter of policy, we enter into hedging arrangements with counterparties that are large, creditworthy
financial institutions typically rated at least "A/A2" by S&P and Moody's, respectively.
Developing an effective strategy for dealing with movements in interest rates and foreign currencies is complex and no
strategy can completely insulate us from risks associated with such fluctuations. There can be no assurance that any hedging
activities will have the desired beneficial impact on our results of operations or financial condition.
Significant increases in interest rates could have an adverse effect on our operating results.
Our operating results 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 interest earning assets and interest bearing liabilities subject to the
impact of interest rate floors and caps, as well as the amounts of floating rate assets and liabilities. Any significant compression
of the spreads between interest earning assets and interest bearing liabilities could have a material adverse effect on us. While
interest rates remain low by historical standards, rates have recently risen and are generally expected to rise in the coming years,
although there is no certainty as to the amount by which they may rise. In the event of a significant rising interest rate environment,
rates could exceed the interest rate floors that exist on certain of our floating rate debt and create a mismatch between our floating
rate loans and our floating rate debt that could have a significant adverse effect on our operating results. An increase in interest
rates could also, 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. In addition, rising interest rates tend to negatively impact the residential mortgage market, which in turn
may adversely affect the value of and demand for our land assets, including our residential development projects. Interest rates
are highly sensitive to many factors, including governmental monetary and tax policies, domestic and international economic and
political conditions, and other factors beyond our control.
We are required to make a number of judgments in applying accounting policies, and different estimates and assumptions
could result in changes to our financial condition and results of operations. The carrying values of our assets held for investment
are not determined based upon the prices at which they could be sold currently.
Material estimates that are particularly susceptible to significant change underlie our determination of the reserve for loan
losses, which is based primarily on the estimated fair value of loan collateral, as well as the valuation of real estate assets and
deferred tax assets. While we have identified those accounting policies that are considered critical and have procedures in place
to facilitate the associated judgments, different assumptions in the application of these policies could have a material adverse effect
on our financial performance and results of operations and actual results may differ materially from our estimates.
In addition, as discussed further in the notes to our consolidated financial statements, we record our real estate and land and
development assets at cost less accumulated depreciation and amortization. If we hold a property for use or investment, we will
only review it for impairment in value if events or changes in circumstances indicate that the carrying amount of the property may
not be recoverable, based on management's determination that the aggregate future cash flows to be generated by the asset (taking
into account the anticipated holding period of the asset) is less than the carrying value. Management's estimates of cash flows
considers factors such as expected future operating income trends, as well as the effects of demand, competition and other economic
factors. The carrying values of our real estate and land and development assets are not indicative of the prices at which we would
be able to sell the properties, if we had to do so before the end of their intended holding period. If we changed our investment
intent and decided to sell a property that was being held for investment, including in distressed circumstances as a means of raising
liquidity, there can be no assurance that we would not realize losses on such sales, which losses could have a material adverse
effect on our business, financial results, liquidity and the market price of our common stock.
Changes in accounting rules will affect our financial reporting.
The Financial Accounting Standards Board ("FASB") has issued new accounting standards that will affect our financial
reporting.
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In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses: Measurement of Credit Losses on
Financial Instruments ("ASU 2016-13") which was issued to provide financial statement users with more decision-useful
information about the expected credit losses on financial instruments held by a reporting entity. This amendment replaces the
incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires
consideration of a broader range of reasonable and supportable information to inform credit loss estimates. ASU 2016-13 is effective
for interim and annual reporting periods beginning after December 15, 2019. Early adoption is permitted for interim and annual
reporting periods beginning after December 15, 2018. Management does not believe the guidance will have a material impact on
the Company's consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, Leases ("ASU 2016-02"), which requires the recognition of lease assets
and lease liabilities by lessees for those leases classified as operating leases. For operating leases, a lessee will be required to do
the following: (i) recognize a right-of-use asset and a lease liability, initially measured at the present value of the lease payments,
in the statement of financial position; (ii) recognize a single lease cost, calculated so that the cost of the lease is allocated over the
lease term on a generally straight-line basis and (iii) classify all cash payments within operating activities in the statement of cash
flows. For operating lease arrangements for which the Company is the lessee, primarily the lease of office space, the Company
expects the impact of ASU 2016-02 to be the recognition of a right-of-use asset and lease liability on its consolidated balance
sheets. The accounting applied by the Company as a lessor will be largely unchanged from that applied under previous GAAP.
However, in certain instances, a new long-term lease of land subsequent to adoption could be classified as a sales-type lease, which
could result in the Company derecognizing the underlying asset from its books and recording a profit or loss on sale and the net
investment in the lease. ASU 2016-02 is effective for interim and annual reporting periods beginning after December 15, 2018.
Early adoption is permitted. Management is evaluating the impact of the guidance 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. Although most of the Company's revenue
is operating lease income generated from lease contracts and interest income generated from financial instruments, certain other
of the Company's revenue streams will be impacted by 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 effective for interim and annual reporting periods beginning after December 15, 2017. Early adoption was permitted
beginning January 1, 2017. We will adopt ASU 2014-09 using the modified retrospective approach (refer to Note 3 for more
information regarding the impact of ASU 2014-09).
Changes in accounting standards could affect the comparability of our reported results with prior periods and our ability to
comply with financial covenants under our debt instruments. We may also need to change our accounting systems and processes
to enable us to comply with the new standards, which may be costly.
For additional information regarding new accounting standards, refer to Note 3 to our consolidated financial statements
under the heading "New accounting pronouncements."
Our reserves for loan losses may prove inadequate, which could have a material adverse effect on our financial results.
We maintain loan loss reserves to offset potential future losses. Our general loan loss reserve reflects management's then-
current estimation of the probability and severity of losses within our portfolio. In addition, our determination of asset-specific
loan loss reserves relies on material estimates regarding the fair value of loan collateral. Estimation of ultimate loan losses, provision
expenses and loss reserves is a complex and subjective process. As such, there can be no assurance that management's judgment
will prove to be correct and that reserves will be adequate over time to protect against potential future losses. Such losses could
be caused by factors including, but not limited to, unanticipated adverse changes in the economy or events adversely affecting
specific assets, borrowers, industries in which our borrowers operate or markets in which our borrowers or their properties are
located. In particular, during the previous financial crisis, the weak economy and disruption of the credit markets adversely impacted
the ability and willingness of many of our borrowers to service their debt and refinance our loans to them at maturity. If our reserves
for credit losses prove inadequate we may suffer additional losses which would have a material adverse effect on our financial
performance, liquidity and the market price of our common stock.
We have suffered losses when a borrower defaults on a loan and the underlying collateral value is not sufficient, and we may
suffer additional losses in the future.
We have suffered losses arising from borrower defaults on our loan assets and we may suffer additional losses in the future.
In the event of a default by a borrower on a non-recourse loan, we will only have recourse to the real estate-related assets
collateralizing the loan. If the underlying collateral value is less than the loan amount, we will suffer a loss. Conversely, we
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sometimes make loans that are unsecured or are secured only by equity interests in the borrowing entities. These loans are subject
to the risk that other lenders may be directly secured by the real estate assets of the borrower. In the event of a default, those
collateralized lenders would have priority over us with respect to the proceeds of a sale of the underlying real estate. In cases
described above, we may lack control over the underlying asset collateralizing our loan or the underlying assets of the borrower
prior to a default, and as a result the value of the collateral may be reduced by acts or omissions by owners or managers of the
assets.
We sometimes obtain individual or corporate guarantees from borrowers or their affiliates. In cases where guarantees are
not fully or partially secured, we typically rely on financial covenants from borrowers and guarantors which are designed to require
the borrower or guarantor to maintain certain levels of creditworthiness. Where we do not have recourse to specific collateral
pledged to satisfy such guarantees or recourse loans, or where the value of the collateral proves insufficient, we will only have
recourse as an unsecured creditor to the general assets of the borrower or guarantor, some or all of which may be pledged to satisfy
other lenders. There can be no assurance that a borrower or guarantor will comply with its financial covenants, or that sufficient
assets will be available to pay amounts owed to us under our loans and guarantees. As a result of these factors, we may suffer
additional losses which could have a material adverse effect on our financial performance, liquidity and the market price of our
common stock.
In the event of a borrower bankruptcy, we may not have full recourse to the assets of the borrower in order to satisfy our
loan. In addition, certain of our loans are subordinate to other debts of the borrower. If a borrower defaults on our loan or on debt
senior to our loan, or in the event of a borrower bankruptcy, our loan will be satisfied only after the senior debt receives payment.
Where debt senior to our loan exists, the presence of intercreditor arrangements may limit our ability to amend our loan documents,
assign our loans, accept prepayments, exercise our remedies (through "standstill" periods) and control decisions made in bankruptcy
proceedings relating to borrowers. Bankruptcy and borrower litigation can significantly increase collection costs and losses and
the time necessary to acquire title to the underlying collateral, during which time the collateral may decline in value, causing us
to suffer additional losses.
If the value of collateral underlying our loan declines or interest rates increase during the term of our loan, a borrower may
not be able to obtain the necessary funds to repay our loan at maturity through refinancing. Decreasing collateral value and/or
increasing interest rates may hinder a borrower's ability to refinance our loan because the underlying property cannot satisfy the
debt service coverage requirements necessary to obtain new financing. If a borrower is unable to repay our loan at maturity, we
could suffer additional loss which may adversely impact our financial performance.
We are subject to additional risks associated with loan participations.
Some of our loans are participation interests or co-lender arrangements in which we share the rights, obligations and benefits
of the loan with other lenders. We may need the consent of these parties to exercise our rights under such loans, including rights
with respect to amendment of loan documentation, enforcement proceedings in the event of default and the institution of, and
control over, foreclosure proceedings. Similarly, a majority of the participants may be able to take actions to which we object but
to which we will be bound if our participation interest represents a minority interest. We may be adversely affected by this lack
of full control.
We are subject to additional risk associated with owning and developing real estate.
We own a number of assets that previously served as collateral on defaulted loans. These assets are predominantly land and
development assets and operating properties. These assets expose us to additional risks, including, without limitation:
• We must incur costs to carry these assets and in some cases make repairs to defects in construction, make improvements
to, or complete the assets, which requires additional liquidity and results in additional expenses that could exceed our
original estimates and impact our operating results.
• Real estate projects are not liquid and, to the extent we need to raise liquidity through asset sales, we may be limited in
our ability to sell these assets in a short-time frame.
• Uncertainty associated with economic conditions, rezoning, obtaining governmental permits and approvals, concerns of
community associations, reliance on third party contractors, increasing commodity costs and threatened or pending
litigation may materially delay our completion of rehabilitation and development activities and materially increase their
cost to us.
• The values of our real estate investments are subject to a number of factors outside of our control, including changes in
the general economic climate, changes in interest rates and the availability of attractive financing, over-building or
decreasing demand in the markets where we own assets, and changes in law and governmental regulations.
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The residential market has experienced significant downturns that could recur and adversely affect us.
As of December 31, 2017, we owned land and residential condominiums with a net carrying value of $908.8 million. The
housing market in the United States has previously been affected by weakness in the economy, high unemployment levels and
low consumer confidence. It is possible another downturn could occur again in the near future and adversely impact our portfolio,
and accordingly our financial performance. In addition, rising interest rates tend to negatively impact the residential mortgage
market, which in turn may adversely affect the value of and demand for our land assets including our residential development
projects.
We may experience losses if the creditworthiness of our tenants deteriorates and they are unable to meet their lease obligations.
We own properties leased to tenants of our real estate assets and receive rents from tenants during the contracted term of
such leases. A tenant's ability to pay rent is determined by its creditworthiness, among other factors. If a tenant's credit deteriorates,
the tenant may default on its obligations under our lease and may also become bankrupt. The bankruptcy or insolvency of our
tenants or other failure to pay is likely to adversely affect the income produced by our real estate assets. If a tenant defaults, we
may experience delays and incur substantial costs in enforcing our rights as landlord. If a tenant files for bankruptcy, we may not
be able to evict the tenant solely because of such bankruptcy or failure to pay. A court, however, may authorize a tenant to reject
and terminate its lease with us. In such a case, our claim against the tenant for unpaid, future rent would be subject to a statutory
cap that might be substantially less than the remaining rent owed under the lease. In addition, certain amounts paid to us within
90 days prior to the tenant's bankruptcy filing could be required to be returned to the tenant's bankruptcy estate. In any event, it
is highly unlikely that a bankrupt or insolvent tenant would pay in full amounts it owes us under a lease that it intends to reject.
In other circumstances, where a tenant's financial condition has become impaired, we may agree to partially or wholly terminate
the lease in advance of the termination date in consideration for a lease termination fee that is likely less than the total contractual
rental amount. Without regard to the manner in which the lease termination occurs, we are likely to incur additional costs in the
form of tenant improvements and leasing commissions in our efforts to lease the space to a new tenant. In any of the foregoing
circumstances, our financial performance could be materially adversely affected.
We are subject to risks relating to our asset concentration.
Our portfolio consists primarily of real estate and commercial real estate loans which are generally diversified by asset type,
obligor, property type and geographic location. As of December 31, 2017, approximately 22% of the gross carrying value of our
assets related to land and development properties, 20% related to office properties, 12% related to mixed collateral properties,
12% related to entertainment/leisure collateral properties and 11% related to condominium properties. All of these property types
were adversely affected by the previous economic recession. In addition, as of December 31, 2017, approximately 36% of the
carrying value of our assets related to properties located in the northeastern United States (including 22% in New York), 18%
related to properties located in the western United States (including 12% in California), 16% related to properties located in the
southeastern United States and 13% related to properties located in the southwestern United States. These regions include areas
that were particularly hard hit by the prior downturn in the residential real estate markets. In addition, we have $9.2 million of
international assets, which are subject to increased risks due to the economic uncertainty abroad. We may suffer additional losses
on our assets due to these concentrations.
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 borrowers 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 customer, the inability of that borrower or tenant
to make its payment could have a material adverse effect on us. As of December 31, 2017, our five largest borrowers or tenants
of net lease assets collectively accounted for approximately 15.0% of our 2017 revenues, of which no single customer accounts
for more than 5.7%.
Lease expirations, lease defaults and lease terminations may adversely affect our revenue.
Lease expirations and lease terminations may result in reduced revenues if the lease payments received from replacement
tenants are less than the lease payments received from the expiring or terminating corporate tenants. In addition, lease defaults or
lease terminations by one or more significant tenants or the failure of tenants under expiring leases to elect to renew their leases
could cause us to experience long periods of vacancy with no revenue from a facility and to incur substantial capital expenditures
and/or lease concessions in order to obtain replacement tenants. Leases representing approximately 27.4% of our in-place operating
lease income are scheduled to expire during the next five years.
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We compete with a variety of financing and leasing sources for our customers.
The financial services industry and commercial real estate markets are highly competitive and have become more competitive
in recent years. Our competitors include finance companies, other REITs, commercial banks and thrift institutions, investment
banks and hedge funds, among others. Our competitors may seek to compete aggressively on a number of factors including
transaction pricing, terms and structure. We may have difficulty competing to the extent we are unwilling to match our competitors'
deal terms in order to maintain our interest margins and/or credit standards. To the extent that we match competitors' pricing, terms
or structure, we may experience decreased interest margins and/or increased risk of credit losses, which could have a material
adverse effect on our financial performance, liquidity and the market price of our common stock.
We face significant competition within our net leasing business from other owners, operators and developers of properties,
many of which own properties similar to ours in markets where we operate. Such competition may affect our ability to attract and
retain tenants and reduce the rents we are able to charge. These competing properties may have vacancy rates higher than our
properties, which may result in their owners offering lower rental rates than we would or providing greater tenant improvement
allowances or other leasing concessions. This combination of circumstances could adversely affect our revenues and financial
performance.
We are subject to certain risks associated with investing in real estate, including potential liabilities under environmental laws
and risks of loss from weather conditions, man-made or natural disasters, climate change and terrorism.
Under various U.S. federal, state and local environmental laws, ordinances and regulations, a current or previous owner of
real estate (including, in certain circumstances, a secured lender that succeeds to ownership or control of a property) may become
liable for the costs of removal or remediation of certain hazardous or toxic substances at, on, under or in its property. Those laws
typically impose cleanup responsibility and liability without regard to whether the owner or control party knew of or was responsible
for the release or presence of such hazardous or toxic substances. The costs of investigation, remediation or removal of those
substances may be substantial. The owner or control party of a site may be subject to common law claims by third parties based
on damages and costs resulting from environmental contamination emanating from a site. Certain environmental laws also impose
liability in connection with the handling of or exposure to asbestos-containing materials, pursuant to which third parties may seek
recovery from owners of real properties for personal injuries associated with asbestos-containing materials. While a secured lender
is not likely to be subject to these forms of environmental liability, when we foreclose on real property, we become an owner and
are subject to the risks of environmental liability. Additionally, our net lease assets require our tenants to undertake the obligation
for environmental compliance and indemnify us from liability with respect thereto. There can be no assurance that our tenants
will have sufficient resources to satisfy their obligations to us.
Weather conditions and man-made or natural disasters such as hurricanes, tornadoes, earthquakes, floods, droughts, fires
and other environmental conditions can damage properties we own. As of December 31, 2017, approximately 18% of the carrying
value of our assets was located in the western and northwestern United States, geographic areas at higher risk for earthquakes.
Additionally, we own properties located near the coastline and the value of our properties will potentially be subject to the risks
associated with long-term effects of climate change. A significant number of our properties are located in major urban areas which,
in recent years, have been high risk geographical areas for terrorism and threats of terrorism. Certain forms of terrorism including,
but not limited to, nuclear, biological and chemical terrorism, political risks, environmental hazards and/or Acts of God may be
deemed to fall completely outside the general coverage limits of our insurance policies or may be uninsurable or cost prohibitive
to justify insuring against. Furthermore, if the U.S. Terrorism Risk Insurance Program Reauthorization Act is repealed or not
extended or renewed upon its expiration, the cost for terrorism insurance coverage may increase and/or the terms, conditions,
exclusions, retentions, limits and sublimits of such insurance may be materially amended, and may effectively decrease the scope
and availability of such insurance to the point where it is effectively unavailable. Future weather conditions, man-made or natural
disasters, effects of climate change or acts of terrorism could adversely impact the demand for, and value of, our assets and could
also directly impact the value of our assets through damage, destruction or loss, and could thereafter materially impact the availability
or cost of insurance to protect against these events. Although we believe our owned real estate and the properties collateralizing
our loan assets are adequately covered by insurance, we cannot predict at this time if we or our borrowers will be able to obtain
appropriate coverage at a reasonable cost in the future, or if we will be able to continue to pass along all of the costs of insurance
to our tenants. Any weather conditions, man-made or natural disasters, terrorist attack or effect of climate change, whether or not
insured, could have a material adverse effect on our financial performance, liquidity and the market price of our common stock.
In addition, there is a risk that one or more of our property insurers may not be able to fulfill their obligations with respect to
claims payments due to a deterioration in its financial condition.
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From time to time we make investments in companies over which we do not have sole control. Some of these companies operate
in industries that differ from our current operations, with different risks than investing in real estate.
From time to time we make debt or equity investments in other companies that we may not control or over which we may
not have sole control. Although these businesses generally have a significant real estate component, some of them may operate
in businesses that are different from our primary business segments. Consequently, investments in these businesses, among other
risks, subject us to the operating and financial risks of industries other than real estate and to the risk that we do not have sole
control over the operations of these businesses.
From time to time we may make additional investments in or acquire other entities that may subject us to similar risks.
Investments in entities over which we do not have sole control, including joint ventures, present additional risks such as having
differing objectives than our partners or the entities in which we invest, or becoming involved in disputes, or competing with those
persons. In addition, we rely on the internal controls and financial reporting controls of these entities and their failure to maintain
effectiveness or comply with applicable standards may adversely affect us.
Declines in the market values of our equity investments may adversely affect periodic reported results.
Most of our equity investments are in funds or companies that are not publicly traded and their fair value may not be readily
determinable. We may periodically estimate the fair value of these investments, based upon available information and management's
judgment. Because such valuations are inherently uncertain, they may fluctuate over short periods of time. In addition, our
determinations regarding the fair value of these investments may be materially higher than the values that we ultimately realize
upon their disposal, which could result in losses that have a material adverse effect on our financial performance, the market price
of our common stock and our ability to pay dividends.
Quarterly results may fluctuate and may not be indicative of future quarterly performance.
Our quarterly operating results could fluctuate; therefore, reliance should not be placed on past quarterly results as indicative
of our performance in future quarters. Factors that could cause quarterly operating results to fluctuate include, among others,
variations in loan and real estate portfolio performance, levels of non-performing assets and related provisions, market values of
investments, costs associated with debt, general economic conditions, the state of the real estate and financial markets and the
degree to which we encounter competition in our markets.
Our ability to retain and attract key personnel is critical to our success.
Our success depends on our ability to retain our senior management and the other key members of our management team
and recruit additional qualified personnel. We rely in part on equity compensation to retain and incentivize our personnel. In
addition, if members of our management join competitors or form competing companies, the competition could have a material
adverse effect on our business. Efforts to retain or attract professionals may result in additional compensation expense, which
could affect our financial performance.
Security breaches and other disruptions could compromise our information and expose us to liability, which would cause our
business and reputation to suffer.
In the ordinary course of our business, we collect and store sensitive data, including intellectual property, our proprietary
business information and that of our customers, and personally identifiable information of our customers and employees, in our
data centers and on our networks. The secure processing, maintenance and transmission of this information is critical to our
operations and business strategy. Despite our security measures, our information technology and infrastructure may be vulnerable
to attacks by hackers or breached due to employee error, malfeasance or other disruptions. Any such breach could compromise
our networks and the information stored there could be accessed, publicly disclosed, lost or stolen. Any such access, disclosure
or other loss of information could result in legal claims or proceedings, liability under laws that protect the privacy of personal
information, disrupt our operations and the services we provide to customers, and damage our reputation, which could have a
material adverse effect on our business.
We may change certain of our policies without stockholder approval.
Our charter does not set forth specific percentages of the types of investments we may make. We can amend, revise or
eliminate our investment financing and conflict of interest policies at any time at our discretion without a vote of our shareholders.
A change in these policies could have a material adverse effect on our financial performance, liquidity and the market price of our
common stock.
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Certain provisions in our charter may inhibit a change in control.
Generally, to maintain our qualification as a REIT under the Code, not more than 50% in value of our outstanding shares
of stock may be owned, directly or indirectly, by five or fewer individuals at any time during the last half of our taxable year. The
Code defines "individuals" for purposes of the requirement described in the preceding sentence to include some types of entities.
Under our charter, no person may own more than 9.8% of our outstanding shares of stock, with some exceptions. The restrictions
on transferability and ownership may delay, deter or prevent a change in control or other transaction that might involve a premium
price or otherwise be in the best interest of the security holders.
We would be subject to adverse consequences if we fail to qualify as a REIT.
We believe that we have been organized and operated in a manner so as to qualify for taxation as a REIT for U.S. federal
income tax purposes commencing with our taxable year ended December 31, 1998. Our qualification as a REIT, however, has
depended and will continue to depend on our ability to meet various requirements concerning, among other things, the ownership
of our outstanding stock, the nature of our assets, the sources of our income and the amount of our distributions to our shareholders.
Our compliance with the REIT income and quarterly asset requirements also depends upon our ability to manage successfully the
composition of our income and assets on an ongoing basis. Our ability to satisfy these asset tests depends upon our analysis of
the characterization of our assets for U.S. federal income tax purposes and fair market values of our assets. The fair market values
of certain of our assets are not susceptible to a precise determination.
If we were to fail to qualify as a REIT for any taxable year, we would not be allowed a deduction for distributions to our
shareholders in computing our net taxable income and would be subject to U.S. federal income tax, including, for taxable years
prior to 2018, any applicable alternative minimum tax on our net taxable income at regular corporate rates and applicable state
and local taxes. We would also be disqualified from treatment as a REIT for the four subsequent taxable years following the year
during which our REIT qualification was lost unless we were entitled to relief under certain Code provisions and obtained a ruling
from the IRS. If disqualified and unable to obtain relief, we may need to borrow money or sell assets to pay taxes. As a result,
cash available for distribution would be reduced for each of the years involved. Furthermore, it is possible that future economic,
market, legal, tax or other considerations may cause our REIT qualification to be revoked. This could have a material adverse
effect on our business and the market price of our common stock.
Our 2016 Senior Secured Credit Facility and 2015 Secured Revolving Credit Facility (see Item 8—"Financial Statements
and Supplemental Data—Note 10") prohibit us from paying dividends on our common stock if we no longer qualify as a REIT.
To qualify as a REIT, we may be forced to borrow funds, sell assets or take other actions during unfavorable market conditions.
To qualify as a REIT, we generally must distribute to our shareholders at least 90% of our net taxable income, excluding
net capital gains each year, and we will be subject to U.S. federal income tax, as well as applicable state and local taxes, to the
extent that we distribute less than 100% of our net taxable income each year. In addition, we will be subject to a 4% nondeductible
excise tax on the amount, if any, by which distributions paid by us in any calendar year are less than the sum of 85% of our ordinary
income, 95% of our capital gain net income and 100% of our undistributed income from prior years.
In the event that principal, premium or interest payments with respect to a particular debt instrument that we hold are not
made when due, we may nonetheless be required to continue to recognize the unpaid amounts as taxable income. In addition, we
may be allocated taxable income in excess of cash flow received from some of our partnership investments. For taxable years
beginning after December 31, 2017, we will generally be required to take certain amounts into income no later than the time such
amounts are reflected on our financial statements (this rule will apply to debt instruments issued with original issue discount for
taxable years beginning after December 31, 2018). Also, in certain circumstances our ability to deduct interest expenses for U.S.
federal income tax purposes may be limited. From these and other potential timing differences between income recognition or
expense deduction and cash receipts or disbursements, there is a significant risk that we may have substantial taxable income in
excess of cash available for distribution. In order to qualify as a REIT and avoid the payment of income and excise taxes, we may
need to borrow funds or take other actions to meet our REIT distribution requirements for the taxable year in which the phantom
income is recognized.
Complying with the REIT requirements may cause us to forego and/or liquidate otherwise attractive investments.
In order to meet the income, asset and distribution tests under the REIT rules, we may be required to take or forego certain
actions. For instance, we may not be able to make certain investments and we may have to liquidate other investments. In addition,
we may be required to make distributions to shareholders at disadvantageous times or when we do not have funds readily available
for distribution. These actions could have the effect of reducing our income and amounts available for distribution to our
shareholders.
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Certain of our business activities may potentially be subject to the prohibited transaction tax, which could reduce the return
on your investment.
For so long as we qualify as a REIT, our ability to dispose of certain properties may be restricted under the REIT rules,
which generally impose a 100% penalty tax on any gain recognized on "prohibited transactions," which refers to the disposition
of property that is deemed to be inventory or held primarily for sale to customers in the ordinary course of our business, subject
to certain exceptions. Whether property is inventory or otherwise held primarily for sale depends on the particular facts and
circumstances. The Code provides a safe harbor that, if met, allows a REIT to avoid being treated as engaged in a prohibited
transaction. No assurance can be given that any property that we sell will not be treated as property held for sale to customers,
or that we can comply with the safe harbor. The 100% tax does not apply to gains from the sale of foreclosure property or to
property that is held through a taxable REIT subsidiary ("TRS") or other taxable corporation, although such income will be subject
to tax in the hands of the corporation at regular corporate rates. We intend to structure our activities to avoid prohibited transaction
characterization.
Certain of our activities, including our use of TRSs, are subject to taxes that could reduce our cash flows.
Even if we qualify as a REIT for U.S. federal income tax purposes, we will be required to pay some U.S. federal, state, local
and non-U.S. taxes on our income and property, including taxes on any undistributed income, taxes on income from certain activities
conducted as a result of foreclosures, and property and transfer taxes. We would be required to pay taxes on net taxable income
that we fail to distribute to our shareholders. In addition, we may be required to limit certain activities that generate non-qualifying
REIT income, such as land development and sales of condominiums, and/or we may be required to conduct such activities through
TRS. We hold a significant amount of assets in our TRS, including assets that we have acquired through foreclosure, assets that
may be treated as dealer property and other assets that could adversely affect our ability to qualify as a REIT if held at the REIT
level. As a result, we will be required to pay income taxes on the taxable income generated by these assets. Furthermore, we will
be subject to a 100% penalty tax to the extent our economic arrangements with our TRS are not comparable to similar arrangements
among unrelated parties. We will also be subject to a 100% tax to the extent we derive income from the sale of assets to customers
in the ordinary course of business other than through our TRS. To the extent we or our TRS are required to pay U.S. federal, state,
local or non-U.S. taxes, we will have less cash available for distribution to our shareholders.
We have substantial net operating loss carry forwards which we use to offset our tax and distribution requirements. We fully
utilized our net capital loss carry forward during the year ended December 31, 2017. Net operating losses arising in taxable years
beginning after December 31, 2017 will only be able to offset 80% of our net taxable income (prior to the application of the
dividends paid deduction) and may not be carried back. In the event that we experience an "ownership change" for purposes of
Section 382 of the Code, our ability to use these losses will be limited. An "ownership change" is determined through a set of
complex rules which track the changes in ownership that occur in our common stock for a trailing three year period. We have
experienced volatility and significant trading in our common stock in recent years. The occurrence of an ownership change is
generally beyond our control and, if triggered, may increase our tax and distribution obligations for which we may not have
sufficient cash flow.
A failure to comply with the limits on our ownership of and relationship with our TRS would jeopardize our REIT qualification
and may result in the application of a 100% excise tax.
No more than 20% (25% for taxable years beginning after July 30, 2008 and before December 31, 2017) of the value of a
REIT's total assets may consist of stock or securities of one or more TRS. This requirement limits the extent to which we can
conduct activities through TRS or expand the activities that we conduct through TRS. The values of some of our assets, including
assets that we hold through TRSs may not be subject to precise determination, and values are subject to change in the future. In
addition, we hold certain mortgage and mezzanine loans within one or more of our TRS that are secured by real property. We treat
these loans as qualifying assets for purposes of the REIT asset tests to the extent that such mortgage loans are secured by real
property and such mezzanine loans are secured by an interest in a limited liability company that holds real property. We received
from the IRS a private letter ruling which holds that we may exclude such loans from the limitation that securities from TRS must
constitute no more than 20% (25% for taxable years beginning after July 30, 2008 and before December 31, 2017) of our total
assets. We are entitled to rely upon this private letter ruling only to the extent that we did not misstate or omit a material fact in
the ruling request and that we continue to operate in accordance with the material facts described in such request, and no assurance
can be given that we will always be able to do so. To the extent that any loan is recharacterized as equity, it would increase the
amount of non-real estate securities that we have in our TRS and could adversely affect our ability to meet the limitation described
above. If we were not able to exclude such loans to our TRS from the limitation described above, our ability to meet the REIT
asset tests and other REIT requirements could be adversely affected. Accordingly, there can be no assurance that we have met or
will be able to continue to comply with the TRS limitation.
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In addition, we may from time to time need to make distributions from a TRS in order to keep the value of our TRS below
the TRS limitation. TRS dividends, however, generally will not constitute qualifying income for purposes of the 75% REIT gross
income test. While we will monitor our compliance with both this income test and the limitation on the percentage of our total
assets represented by TRS securities, and intend to conduct our affairs so as to comply with both, the two may at times be in
conflict with one another. For example, it is possible that we may wish to distribute a dividend from a TRS in order to reduce the
value of our TRS to comply with limitation, but we may be unable to do so without simultaneously violating the 75% REIT gross
income test.
Although there are other measures we can take in such circumstances to remain in compliance with the requirements for
REIT qualification, there can be no assurance that we will be able to comply with both of these tests in all market conditions.
Dividends payable by REITs do not qualify for the reduced tax rates on dividend income from C corporations, which could
adversely affect the value of our common stock.
The maximum U.S. federal income tax rate for certain qualified dividends payable by C corporations to U.S. stockholders
that are individuals, trusts and estates is 20%. Dividends payable by REITs, however, are generally not eligible for the reduced
qualified dividend rate. However, for taxable years beginning after December 31, 2017 and before January 1, 2026, under the
recently enacted Tax Cuts and Jobs Act, noncorporate taxpayers may deduct up to 20% of certain qualified business income,
including "qualified REIT dividends" (generally, dividends received by a REIT shareholder that are not designated as capital gain
dividends or qualified dividend income), subject to certain limitations, resulting in an effective maximum U.S. federal income tax
rate of 29.6% on such income. Although the reduced U.S. federal income tax rate applicable to qualified dividends from C
corporations does not adversely affect the taxation of REITs or dividends paid by REITs, the more favorable rates applicable to
regular corporate dividends, together with the recently reduced corporate tax rate (21%), could cause investors who are individuals,
trusts and estates to perceive investments in REITs to be relatively less attractive than investments in the stocks of non-REIT
corporations that pay dividends, which could adversely affect the value of the shares of REITs, including our common stock.
Legislative or regulatory tax changes related to REITs could materially and adversely affect us.
The U.S. federal income tax laws and regulations governing REITs and their stockholders, as well as the administrative
interpretations of those laws and regulations, are constantly under review and may be changed at any time, possibly with retroactive
effect. No assurance can be given as to whether, when, or in what form, the U.S. federal income tax laws applicable to us and our
stockholders may be enacted. Changes to the U.S. federal income tax laws and interpretations of U.S. federal tax laws could
adversely affect an investment in our common stock.
The Tax Cuts and Jobs Act, which was signed into law on December 22, 2017, made significant changes to the U.S. federal
income tax laws applicable to businesses and their owners, including REITs and their stockholders. Certain key provisions of the
Tax Cuts and Jobs Act could impact the Company and its stockholders, beginning in 2018, including the following:
• Reduced Tax Rates. The highest individual U.S. federal income tax rate on ordinary income is reduced from 39.6% to
37% (through taxable years ending in 2025), and the maximum corporate income tax rate is reduced from 35% to 21%.
In addition, individuals, trust, and estates that own the Company's stock are permitted to deduct up to 20% of dividends
received from the Company (other than dividends that are designated as capital gain dividends or qualified dividend
income), generally resulting in an effective maximum U.S. federal income tax rate of 29.6% on such dividends (through
taxable years ending in 2025). Further, the amount that the Company is required to withhold on distributions to non-U.S.
stockholders that are treated as attributable to gains from the Company's sale or exchange of U.S. real property interests
is reduced from 35% to 21%.
• Net Operating Losses. The Company may not use net operating losses generated beginning in 2018 to offset more than
80% of the Company's taxable income (prior to the application of the dividends paid deduction). Net operating losses
generated beginning in 2018 can be carried forward indefinitely but can no longer be carried back.
• Limitation on Interest Deductions. The amount of net interest expense that each of the Company and its TRSs may
deduct for a taxable year is limited to the sum of (i) the taxpayer's business interest income for the taxable year, and (ii)
30% of the taxpayer's "adjusted taxable income" for the taxable year. For taxable years beginning before January 1, 2022,
adjusted taxable income means earnings before interest, taxes, depreciation, and amortization ("EBITDA"); for taxable
years beginning on or after January 1, 2022, adjusted taxable income is limited to earnings before interest and taxes
("EBIT"). Certain electing businesses, including electing real estate businesses, may elect out of the foregoing limitation.
• Alternative Minimum Tax. The corporate alternative minimum tax is eliminated.
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•
Income Accrual. The Company is required to recognize certain items of income for U.S. federal income tax purposes
no later than the Company would report such items on its financial statements. As discussed in Item 1a-Risk factors-"To
qualify as a REIT, we may be forced to borrow funds, sell assets or take other actions during unfavorable market
conditions", earlier recognition of income for U.S. federal income tax purposes could impact the Company's ability to
satisfy the REIT distribution requirements. This provision generally applies to taxable years beginning after December
31, 2017, but will apply with respect to income from a debt instrument having "original issue discount" for U.S. federal
income tax purposes only for taxable years beginning after December 31, 2018.
Prospective investors are urged to consult with their tax advisors regarding the effects of the Tax Cuts and Jobs Act or other
legislative, regulatory or administrative developments on an investment in the Company's common stock.
Our Investment Company Act exemption limits our investment discretion and loss of the exemption would adversely affect us.
We believe that we currently are not, and we intend to operate our company so that we will not be, regulated as an investment
company under the Investment Company Act because we are "primarily engaged in the business of purchasing or otherwise
acquiring mortgages and other liens on and interests in real estate." Specifically, we are required to invest at least 55% of our
assets in "qualifying real estate assets" (that is, real estate, mortgage loans and other qualifying interests in real estate), and at least
80% of our assets in "qualifying real estate assets" and other "real estate-related assets" (such as mezzanine loans and unsecured
investments in real estate entities) combined.
We will need to monitor our assets to ensure that we continue to satisfy the percentage tests. Maintaining our exemption
from regulation as an investment company under the Investment Company Act limits our ability to invest in assets that otherwise
would meet our investment strategies. If we fail to qualify for this exemption, we could not operate our business efficiently under
the regulatory scheme imposed on investment companies under the Investment Company Act, and we could be required to
restructure our activities. This would have a material adverse effect on our financial performance and the market price of our
securities.
Actions of the U.S. government, including the U.S. Congress, Federal Reserve, U.S. Treasury and other governmental and
regulatory bodies, to stabilize or reform the financial markets, or market responses to those actions, may not achieve the
intended effect and may adversely affect our business.
The U.S government, including the U.S. Congress, the Federal Reserve, the U.S Treasury and other governmental and
regulatory bodies have increased their focus on the regulation of the financial industry in recent years. A changing presidential
administration is likely to effect its own regulatory changes. New or modified regulations and related regulatory guidance may
have unforeseen or unintended adverse effects on the financial industry. Laws, regulations or policies, including tax laws and
accounting standards and interpretations, currently affecting us may change at any time. Regulatory authorities may also change
their interpretation of these statutes and regulations. Therefore, our business may also be adversely affected by future changes in
laws, regulations, policies or interpretations or regulatory approaches to compliance and enforcement.
Various legislative bodies have also considered altering the existing framework governing creditors' rights and mortgage
products including legislation that would result in or allow loan modifications of various sorts. Such legislation may change the
operating environment in substantial and unpredictable ways. We cannot predict whether new legislation will be enacted, and if
enacted, the effect that it or any regulations would have on our activities, financial condition, or results of operations.
Item 1b. Unresolved Staff Comments
None.
Item 2. Properties
The Company's principal executive and administrative offices are located at 1114 Avenue of the Americas, New York, NY
10036. Its telephone number and web address are (212) 930-9400 and www.istar.com, respectively. The lease for the Company's
principal executive and administrative offices expires in February 2021. The Company's principal regional offices are located in
the Atlanta, Georgia; Dallas, Texas; Hartford, Connecticut; San Francisco, California and Los Angeles, California metropolitan
areas.
See Item 1—"Net Lease," and "Operating Properties" for a discussion of properties held by the Company for investment
purposes and Item 8—"Financial Statements and Supplemental Data—Schedule III," for a detailed listing of such properties.
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Item 3. Legal Proceedings
The Company and/or one or more of its subsidiaries is party to various pending litigation matters that are considered ordinary
routine litigation incidental to its real estate and real estate related business activities, including loan foreclosure and foreclosure-
related proceedings. In addition to such matters, the Company is a party to the following legal proceedings:
U.S. Home Corporation ("Lennar") v. Settlers Crossing, LLC, et al. (United States District Court for the District of Maryland,
Civil Action No. DKC 08-1863)
On December 4, 2017, the U.S. Supreme Court issued an order denying Lennar’s petition for a writ of certiorari in this
matter. The amount of attorneys’ fees and costs to be recovered by the Company will be determined through further proceedings
before the District Court. The Company has applied for attorney’s fees in excess of $17.0 million. A hearing on the Company’s
application for attorney’s fees has not yet been scheduled.
Item 4. Mine Safety Disclosures
Not applicable.
PART II
Item 5. Market for Registrant's Equity and Related Share Matters
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
2017
2016
High
Low
High
Low
$
$
$
$
12.22
12.26
12.68
12.74
$
$
$
$
11.13
11.16
11.27
10.95
$
$
$
$
12.83
11.21
10.68
11.64
$
$
$
$
10.45
9.10
8.74
7.59
On February 22, 2018, the closing sale price of the common stock as reported by the NYSE was $10.33. The Company had
1,720 holders of record of common stock as of February 22, 2018.
Dividends
The Company's Board of Directors has not established any minimum 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 necessarily 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.
Holders of common stock and certain unvested restricted stock awards 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 2016 Senior Secured
Credit Facility and 2015 Secured Revolving Credit Facility (see Item 8—"Financial Statements and Supplemental Data—Note 10")
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 2016 Senior Secured Credit Facility and 2015 Secured 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.
The Company did not declare or pay dividends on its common stock for the years ended December 31, 2017 and 2016. The
Company declared and paid dividends of $8.0 million, $8.3 million, $5.9 million, $6.1 million and $9.4 million on its Series D,
E, F, G and I Cumulative Redeemable Preferred Stock during the year ended December 31, 2017. In addition, in October 2017,
the Company redeemed its Series E and Series F Preferred Stock and paid dividends through the redemption date of $1.1 million
29
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and $0.8 million, respectively. 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 year ended December 31, 2016.
The Company declared and paid dividends of $9.0 million on its Series J Convertible Perpetual Preferred Stock during the years
ended December 31, 2017 and 2016. The character of the 2017 dividends was 100% capital gain distribution, of which 27.90%
represented unrecaptured section 1250 gain and 72.10% long term capital gain. The character of the 2016 dividends was as follows:
47.30% was a capital gain distribution, of which 76.15% represented unrecaptured section 1250 gain and 23.85% long term capital
gain, and 52.70% was ordinary income. There are no dividend arrearages on any of the preferred shares currently 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 characterization 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.
Issuer Purchases of Equity Securities
The following table sets forth the information with respect to purchases made by or on behalf of the Company of its common
stock during the three months ended December 31, 2017.
Total Number of
Shares Purchased(1)
Average Price
Paid per
Share
Total Number of
Shares Purchased as
Part of a Publicly
Announced Plan
Maximum Dollar
Value of Shares that
May Yet be Purchased
Under the Plans(1)
October 1 to October 31, 2017
November 1 to November 30, 2017
December 1 to December 31, 2017
— $
— $
— $
—
—
—
— $
— $
— $
—
—
50,000,000
_______________________________________________________________________________
(1)
The Company is authorized to repurchase up to $50.0 million of common stock from time to time in the open market and privately negotiated purchases,
including pursuant to one or more trading plans. In December 2017, the Company entered into a 10b5-1 plan (the "10b5-1 Plan") in accordance with Rule
10b5-1 under the Securities and Exchange Act of 1934, as amended, to facilitate repurchases. Whether and how many shares will be repurchased is
uncertain and dependent on prevailing market prices and trading volumes, which we cannot predict.
Disclosure of Equity Compensation Plan Information
(a)
Number of securities to
be issued upon exercise
of outstanding options,
warrants and rights
(b)
Weighted-average
exercise price of
outstanding options,
warrants and rights
(c)
Number of securities
remaining available for
future issuance under
equity compensation plans
(excluding securities
reflected in column (a))
N/A
3,300,642
Plans Category
Equity compensation plans
approved by security holders-
restricted stock awards(1)(2)
_______________________________________________________________________________
(1)
599,342
Restricted Stock—The amount shown in column (a) includes 281,678 unvested restricted stock units which may vest in the future based on the employees'
continued service to the Company (see Item 8—"Financial Statements and Supplemental Data—Note 14" for a more detailed description of the Company's
restricted stock grants). Substantially all of the restricted stock units included in column (a) are required to be settled on a net, after-tax basis (after deducting
shares for minimum required statutory withholdings); therefore, the actual number of shares issued will be less than the gross amount of the awards. The
amount shown in column (a) also includes 317,664 of common stock equivalents and restricted stock awarded to our non-employee directors in consideration
of their service to the Company as directors. Common stock equivalents represent rights to receive shares of common stock at the date the common stock
equivalents are settled. Common stock equivalents have dividend equivalent rights beginning on the date of grant. The amount in column (c) represents
the aggregate amount of stock options, shares of restricted stock units or other performance awards that could be granted under compensation plans approved
by the Company's security holders after giving effect to previously issued awards of stock options, shares of restricted stock units and other performance
awards (see Item 8—"Financial Statements and Supplemental Data—Note 14" for a more detailed description of the Company's Long-Term Incentive
Plans).
The amount shown in column (a) does not include a currently indeterminable number of shares that may be issued upon the satisfaction of performance
and vesting conditions of awards made under the Company's Performance Incentive Plan ("iPIP") approved by shareholders. In no event may the number
of shares issued exceed the amount available in column (c) unless shareholders authorize additional shares (see Item 8—"Financial Statements and
Supplemental Data—Note 14" for a more detailed description of iPIP.)
(2)
30
Table of Contents
Item 6. 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 conjunction with the discussions set forth in Item 7—"Management's Discussion and Analysis of Financial
Condition and Results of Operations."
For the Years Ended December 31,
2017
2016
2015
2014
2013
(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
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 benefit (expense)
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:
$
187,684
$
191,180
$
211,207
$
229,672
$
106,548
188,091
196,879
679,202
194,686
147,617
180,916
49,033
98,882
(5,828)
32,379
20,954
718,639
(39,437)
(14,724)
13,015
—
(41,146)
948
(40,198)
4,939
123,418
92,049
180,208
(4,526)
175,682
(64,758)
134,687
49,924
100,216
496,034
224,639
146,509
67,382
62,045
81,277
36,567
10,524
6,374
122,704
77,583
15,191
445,150
224,483
162,829
12,840
70,375
88,287
(1,714)
34,634
6,340
221,434
108,015
48,208
—
377,657
266,225
156,574
—
68,070
92,114
5,489
12,589
8,050
129,153
46,514
88,340
455,187
221,398
137,522
62,007
51,660
84,027
(12,514)
14,484
5,883
564,467
635,317
598,074
609,111
(109,280)
(139,283)
(152,924)
(1,619)
77,349
—
(33,550)
10,166
(23,384)
18,270
—
105,296
100,182
(4,876)
95,306
(51,320)
(281)
32,153
—
(107,411)
(7,639)
(115,050)
15,077
—
93,816
(6,157)
3,722
(2,435)
(51,320)
(25,369)
94,905
—
(83,388)
(3,912)
(87,300)
13,122
—
89,943
15,765
704
16,469
(51,320)
(231,454)
(33,190)
41,520
(7,373)
(230,497)
659
(229,838)
9,714
22,233
86,658
(111,233)
(718)
(111,951)
(49,020)
—
(14)
1,080
1,129
5,202
$
110,924
$
43,972
$
(52,675) $
(33,722) $
(155,769)
Basic
Diluted
Net income (loss) attributable to iStar Inc.:
Basic
Diluted
Dividends declared per common share
$
$
$
$
$
(0.25) $
(0.25) $
1.56
1.56
$
$
— $
0.35
0.35
0.60
0.60
$
$
$
$
— $
(0.79) $
(0.79) $
(0.62) $
(0.62) $
— $
(0.55) $
(0.55) $
(0.40) $
(0.40) $
— $
(2.20)
(2.20)
(1.83)
(1.83)
—
31
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SUPPLEMENTAL DATA:
Ratio of earnings to fixed charges(3)
Ratio of earnings to fixed charges and preferred
dividends(3)
Weighted average common shares outstanding—basic
Weighted average common shares outstanding—
diluted
Cash flows from (used in):
Operating activities
Investing activities
Financing activities
For the Years Ended December 31,
2017
2016
2015
2014
2013
(In thousands, except per share data and ratios)
—
—
71,021
71,021
—
—
73,453
73,835
—
—
84,987
84,987
—
—
85,031
85,031
—
—
84,990
84,990
$
80,212
$
21,455
$
(58,229) $
10,908
$
(166,367)
269,485
(20,725)
466,543
(870,362)
184,028
112,763
159,793
(212,208)
893,447
(469,856)
2017
2016
2015
2014
2013
As of December 31,
(In thousands)
BALANCE SHEET DATA:
Total real estate(4)
Land and development, net(4)
Loans receivable and other lending investments, net
Total assets
Debt obligations, net
Total equity
$
1,350,619
$
1,624,805
$
1,776,890
$
1,987,843
$
2,227,711
860,311
1,300,655
4,731,078
3,476,400
914,249
945,565
1,450,439
4,825,514
3,389,908
1,059,684
1,001,963
1,601,985
5,597,792
4,118,823
1,101,330
978,962
1,377,843
5,426,483
3,986,034
1,248,348
932,034
1,370,109
5,608,604
4,124,718
1,301,465
_______________________________________________________________________________
(1)
All of the Company's outstanding HPUs were repurchased and retired on August 13, 2015 (see Item 8—"Financial Statements and Supplemental Data
—Note 13). Participating Security holders 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 Item 8—"Financial Statements and Supplemental
Data—Note 14 and 15).
See Item 8—"Financial Statements and Supplemental Data—Note 15."
This ratio of earnings to fixed charges is calculated in accordance with SEC Regulation S-K Item 503. For the years ended December 31, 2017, 2016,
2015, 2014 and 2013, earnings were not sufficient to cover fixed charges by $20,579, $67,976, $114,902, $103,070 and $249,982, respectively, and
earnings were not sufficient to cover fixed charges and preferred dividends by $85,337, $119,296, $166,222, $154,390 and $299,002, 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.
Prior to December 31, 2015, land and development assets were recorded in total real estate. Prior year amounts have been reclassified to conform to
the current period presentation.
(2)
(3)
(4)
32
Table of Contents
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
This discussion summarizes the significant factors affecting our consolidated operating results, financial condition and
liquidity during the three-year period ended December 31, 2017. This discussion should be read in conjunction with our consolidated
financial statements and related notes for the three-year period ended December 31, 2017 included elsewhere in this Annual Report
on Form 10-K. These historical financial statements may not be indicative 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
We finance, invest in and develop real estate and real estate related projects as part of our fully-integrated investment platform.
We also provide management services for our ground lease and net lease equity method investments. 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.
Real Estate Finance: Our real estate finance portfolio is comprised of senior and mezzanine 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 estate related businesses, and may be either secured or unsecured. Our loan portfolio includes whole loans and loan
participations.
Net Lease: The 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
addition to net lease properties owned by us, we partnered with a sovereign wealth fund to form a venture to acquire and develop
net lease assets (the "Net Lease Venture"). We invest in new net lease investments primarily through the Net Lease Venture, in
which we hold a non-controlling 51.9% interest. In 2017, we also conceived and ultimately launched a new, publicly traded REIT
focused exclusively on the ground lease ("Ground Lease") asset class called Safety, Income & Growth Inc. ("SAFE"). We believe
that SAFE is the first publicly-traded company formed primarily to acquire, own, manage, finance and capitalize Ground Leases.
Ground Leases generally represent ownership of the land underlying commercial real estate projects that is triple net leased by
the fee owner of the land to the owners/operators of the real estate projects built thereon. As of December 31, 2017, we owned
approximately 37.6% of SAFE's common stock outstanding which had a market value of $120.2 million at that date.
Operating 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. We generally seek to reposition or
redevelop our transitional properties with the objective of maximizing their value through the infusion of capital and/or concentrated
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 condominium units through retail distribution channels.
Land & Development: 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 United States. Master planned communities
represent large-scale residential projects that we will entitle, plan and/or develop and may sell through retail channels to
homebuilders 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 in partnership with commercial real estate developers,
or may sell the properties.
33
Table of Contents
Executive Overview
In 2017, our real estate finance, net lease and land and development segments performed well and all contributed positively
to earnings. In our continuing effort to find untapped investment opportunities in real estate, we conceived and ultimately launched
a new, publicly traded REIT focused exclusively on the Ground Lease asset class. We also received upgrades to our corporate
credit ratings from all three major ratings agencies when we completed a comprehensive set of capital markets transactions designed
to enhance our capital structure and improve our earnings profile.
Operating Results
During the year ended December 31, 2017, three of our four business segments, including real estate finance, net lease and
land and development, contributed positively to our earnings. Our continued strategy to find selective investment opportunities in
our core net lease and real estate finance businesses contributed to an increase in our earnings as compared to 2016. We also
received a favorable judgment in a matter concerning a land transaction that had a material positive impact on our 2017 earnings
(see "Bevard" below). 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 with the objective of increasing the contribution of these
assets to our earnings in the future. For the year ended December 31, 2017, we recorded net income allocable to common
shareholders of $110.9 million, compared to net income of $44.0 million during the prior year. Adjusted income allocable to
common shareholders for the year ended December 31, 2017 was $214.6 million, compared to $112.6 million during the prior
year (see "Adjusted Income" for a reconciliation of adjusted income to net income).
Capital Markets Activity
In the third and fourth quarters of 2017, we completed a comprehensive set of capital markets transactions that addressed
all parts of our capital structure, resulting in our having:
•
•
•
•
•
•
•
repaid or refinanced all of our 2017 and 2018 corporate debt maturities, leaving no corporate debt maturities until July
2019;
extended our weighted average debt maturity by 1.5 years to 4.0 years;
reduced annual expenses underlying earnings by approximately $37 million, or $0.43 per diluted share;
lowered our cost of capital by approximately 35 basis points;
established new banking relationships;
increased liquidity to pursue new investment opportunities; and
received upgrades in our corporate credit ratings from all three major ratings agencies, which we expect will positively
impact the marginal cost of our future borrowings and broaden our set of investment opportunities.
The table below summarizes the components, sources and uses of the capital markets transactions (in millions) (refer also
to Liquidity and Capital Resources):
Uses
Repay 2016 Senior Secured Credit Facility
$
Repay 4.0% senior unsecured notes due November
2017
Repay 7.125% senior unsecured notes due February
2018
Repay 4.875% senior unsecured notes due July
2018
Redeem 7.875% series E preferred stock
Redeem 7.8% series F preferred stock
Repurchase common stock
Fees, expenses, interest and dividends
Amount
473
550
300
300
140
100
46
51
Sources
Amended 2016 Senior Secured Credit Facility
$
Issue 4.625% senior unsecured notes due
September 2020
Issue 5.25% senior unsecured notes due
September 2022
Issue 3.125% senior unsecured convertible notes
due September 2022
Cash on hand
Amount
400
400
400
250
510
Total uses
$
1,960
Total sources
$
1,960
As of December 31, 2017, we had $657.7 million of cash which we expect to use primarily to repay debt and fund future
investment activities.
34
Table of Contents
Safety, Income & Growth Inc.
In 2017, we conceived and ultimately launched a new, publicly traded REIT focused exclusively on the Ground Lease asset
class. SAFE is the first publicly-traded company formed primarily to acquire, own, manage, finance and capitalize Ground Leases.
Ground Leases generally represent ownership of the land underlying commercial real estate projects that is net leased by the fee
owner of the land to the owners/operators of the real estate projects built thereon. Ground Leases afford investors the opportunity
for safe, growing income derived from (i) a Ground Lease's senior position in the commercial real estate capital structure; (ii)
long-term leases with periodic contractual increases in rent; and (iii) growth in the value of the ground over time. Capital appreciation
is realized when, at the end of the life of the lease, the commercial real estate property reverts back to the lessor, as landlord, and
it is able to realize the value of the leasehold, which may be substantial. Ground Leases share similarities with triple net leases in
that typically the lessor is not responsible for any operating or capital expenses over the life of the lease, making the management
of a Ground Lease portfolio relatively simple, with limited working capital needs.
In April 2017, institutional investors acquired from us a controlling interest in SAFE's predecessor which held our Ground
Lease business. Our Ground Lease business was a component of our net lease segment and consisted of 12 properties subject to
long-term net leases including seven Ground Leases and one master lease (covering five properties). The acquiring entity was a
newly formed unconsolidated entity named Safety, Income & Growth Inc. The carrying value of our Ground Lease assets was
approximately $161.1 million. Shortly before the Acquisition Transactions, we completed the $227.0 million 2017 Secured
Financing on our Ground Lease assets (refer to Note 10). We received all of the proceeds of the 2017 Secured Financing. We
received an additional $113.0 million of proceeds in the Acquisition Transactions, including $55.5 million that we contributed to
SAFE in its initial capitalization. As a result of the Acquisition Transactions, we deconsolidated the 12 properties and the associated
2017 Secured Financing. We account for our investment in SAFE as an equity method investment (refer to Note 7). We accounted
for this transaction as an in substance sale of real estate and recognized a gain of $123.4 million, reflecting the aggregate gain less
the fair value of our retained interest in SAFE.
In June 2017, SAFE completed its initial public offering raising $205.0 million in gross proceeds and concurrently completed
a $45.0 million private placement to us, its largest shareholder. We paid organization and offering costs in connection with these
transactions, including commissions payable to the underwriters and other offering expenses. Subsequent to the initial public
offering and through December 31, 2017, we purchased 1.8 million shares of SAFE's common stock for $34.1 million, at an average
cost of $18.85 per share, pursuant to two 10b5-1 plans (the “10b5-1 Plans") in accordance with Rules 10b5-1 and 10b-18 under
the Securities and Exchange Act of 1934, as amended, under which we could buy in the open market up to 39.9% of SAFE’s
common stock. As of December 31, 2017, we owned approximately 37.6% of SAFE's common stock outstanding which had a
market value of $120.2 million at that date.
In addition, one of our wholly-owned subsidiaries is the external manager of SAFE, our Chairman and Chief Executive
Officer is a director and the Chairman and Chief Executive Officer of SAFE and our other executive officers hold similarly titled
positions with SAFE.
Bevard
In April 2017, we received a favorable judgment from the U.S. Court of Appeals for the Fourth Circuit, affirming a prior
district court judgment relating to a dispute with Lennar over the purchase and sale of Bevard, a master planned community located
in Maryland. On April 21, 2017, we conveyed the property to Lennar and received $234.3 million of net proceeds after payment
of $3.3 million in documentary transfer taxes, comprised of the remaining purchase price of $114.0 million and $123.4 million of
interest and real estate taxes, net of costs. A portion of the net proceeds received by us has been paid to the third party which holds
a 4.3% participation interest in all proceeds received by us.
Lennar filed a petition for a writ of certiorari with the U.S. Supreme Court seeking review of two specific issues decided in
our favor by the lower courts. We filed a brief in opposition to the petition. On December 4, 2017, the U.S. Supreme Court issued
an order denying Lennar’s petition for a writ of certiorari.
The amount of attorneys’ fees and costs to be recovered by us will be determined through further proceedings before the
District Court. We have applied for attorney’s fees in excess of $17.0 million. A hearing on our application for attorney’s fees has
not yet been scheduled.
35
Table of Contents
Portfolio Overview
As of December 31, 2017, based on carrying values gross of accumulated depreciation and general loan loss reserves, our
total investment portfolio has the following characteristics:
36
Table of Contents
As of December 31, 2017, based on carrying values gross of accumulated depreciation and general loan loss reserves, our
total investment portfolio has the following property/collateral type and geographic characteristics ($ in thousands):
Property/Collateral Types
Real Estate
Finance
Net Lease
Operating
Properties
Land &
Development
Total
% of
Total
Land and Development
$
— $
— $
— $
932,547
$
932,547
Office / Industrial
Mixed Use / Mixed Collateral
Entertainment / Leisure
48,900
306,625
673,424
—
—
489,497
Condominium
Hotel
Other Property Types
Retail
Ground Leases(1)
Strategic Investments
Total
421,787
291,929
223,458
25,456
—
—
—
—
—
57,348
129,154
—
128,368
196,667
—
48,519
104,415
11,837
138,928
—
—
—
—
—
—
—
—
—
—
—
850,692
503,292
489,497
470,306
396,344
235,295
221,732
129,154
13,618
22.1%
20.1%
11.9%
11.5%
11.1%
9.3%
5.5%
5.2%
3.0%
0.3%
$ 1,318,155
$ 1,349,423
$
628,734
$
932,547
$ 4,242,477
100.0%
Geographic Region
Real Estate
Finance
Net Lease
Operating
Properties
Land &
Development
Total
% of
Total
Northeast
West
Southeast
Southwest
Central
Mid-Atlantic
Various(2)
Strategic Investments(2)
Total
$
798,357
$
414,373
$
47,557
$
268,953
$ 1,529,240
38,137
181,074
93,509
181,621
—
25,457
—
286,222
253,960
162,684
79,701
149,618
2,865
—
66,398
140,635
256,248
82,161
35,735
—
—
366,672
114,266
22,292
31,500
128,864
—
—
757,429
689,935
534,733
374,983
314,217
28,322
13,618
36.0%
17.9%
16.3%
12.6%
8.8%
7.4%
0.7%
0.3%
$ 1,318,155
$ 1,349,423
$
628,734
$
932,547
$ 4,242,477
100.0%
_______________________________________________________________________________
Primarily represents the market value of our equity method investment in SAFE.
(1)
Strategic investments and the various category include $9.2 million of international assets.
(2)
Real Estate Finance
Our real estate finance business targets sophisticated and innovative owner/operators of real estate and real estate related
projects by providing one-stop capabilities that encompass financing alternatives ranging from full envelope senior loans to
mezzanine and preferred equity capital positions. As of December 31, 2017, our real estate finance portfolio totaled $1.3 billion,
gross of general loan loss reserves. The portfolio included $1.1 billion of performing loans with a weighted average maturity of
2.0 years.
37
Table of Contents
The tables below summarize our loans and the reserves for loan losses associated with our loans ($ in thousands):
December 31, 2017
Gross
Carrying
Value
Reserve
for Loan
Losses
Number
Carrying
Value
% of
Total
Performing loans
36
$
1,051,691
$ (17,500) $ 1,034,191
85.4%
Non-performing loans
5
237,877
(60,989)
176,888
14.6%
Total
41
$
1,289,568
$ (78,489) $ 1,211,079
100.0%
December 31, 2016
Gross
Carrying
Value
Reserve
for Loan
Losses
Number
Carrying
Value
% of
Total
Performing loans
35
$
1,202,127
$ (23,300) $ 1,178,827
86.0%
Non-performing loans
6
253,941
(62,245)
191,696
14.0%
Total
41
$
1,456,068
$ (85,545) $ 1,370,523
100.0%
Reserve for Loan
Losses as a % of
Gross Carrying
Value
1.7%
25.6%
6.1%
Reserve for Loan
Losses as a % of
Gross Carrying
Value
1.9%
24.5%
5.9%
Performing Loans—The table below summarizes our performing loans gross of reserves ($ in thousands):
Senior mortgages
Corporate/Partnership loans
Subordinate mortgages
Total
Weighted average LTV
Yield
December 31, 2017
December 31, 2016
$
$
709,809
$
332,387
9,495
854,805
333,244
14,078
1,051,691
$
1,202,127
67%
9.8%
64%
8.9%
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, 2017, we had non-performing loans with an aggregate
carrying value of $176.9 million compared to non-performing loans with an aggregate carrying value of $191.7 million as of
December 31, 2016. 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 $78.5 million as of December 31, 2017, or 6.1% of total loans,
compared to $85.5 million or 5.9% as of December 31, 2016. For the year ended December 31, 2017, the recovery of loan losses
included a reduction in the general reserve of $5.8 million due to an overall improvement in the risk ratings and a decrease in size
of our loan portfolio. 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 is 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 collateral less costs to sell is lower than the carrying
value of the loan. As of December 31, 2017, asset-specific reserves decreased to $61.0 million compared to $62.2 million as of
December 31, 2016.
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 judgments and future expectations 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
38
Table of Contents
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 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 decreased to $17.5 million or 1.7% of performing loans as of December 31, 2017, compared to $23.3
million or 1.9% of performing loans as of December 31, 2016. The decrease was primarily attributable to an overall improvement
in the risk ratings and a decrease in size of our loan portfolio.
Net Lease
Our net lease business seeks to create stable cash flows through long-term net leases primarily to single tenants on our
properties. We target mission-critical facilities leased on a long-term basis to tenants, offering structured solutions that combine
our capabilities in underwriting, lease structuring, asset management and build-to-suit construction. We invest in new net lease
investments primarily through our Net Lease Venture, in which we hold a 51.9% interest. The Net Lease Venture has a right of
first offer on any new net lease investments that we source (refer to Note 7). The Net Lease Venture's investment period expires
on March 31, 2018. The term of the Net Lease Venture extends through February 13, 2022, subject to two, one-year extension
options at the discretion of us and our partner.
In April 2017, institutional investors acquired a controlling interest in our Ground Lease business through the merger of one
of our subsidiaries and related transactions. Our Ground Lease business was a component of our net lease segment and consisted
of 12 properties subject to long-term net leases including seven Ground Leases and one master lease (covering five properties).
As a result, we deconsolidated the 12 properties and associated liabilities and we began to record our investment in SAFE as an
equity method investment. We have an exclusivity agreement with SAFE pursuant to which we agreed, subject to certain exceptions,
that we will not acquire, originate, invest in, or provide financing for a third party’s acquisition of, a Ground Lease unless we have
first offered that opportunity to SAFE and a majority of its independent directors has declined the opportunity.
In June 2017, SAFE completed its initial public offering raising $205.0 million in gross proceeds and concurrently completed
a $45.0 million private placement to us. Subsequent to the initial public offering and through December 31, 2017, we purchased
1.8 million shares of SAFE's common stock for $34.1 million, at an average cost of $18.85 per share, pursuant to two 10b5-1
plans (the “10b5-1 Plans") in accordance with Rules 10b5-1 and 10b-18 under the Securities and Exchange Act of 1934, as amended,
under which we could buy in the open market up to 39.9% of SAFE’s common stock. As of December 31, 2017, we owned
approximately 37.6% of SAFE's common stock outstanding which had a market value of $120.2 million at that date.
As of December 31, 2017, our consolidated net lease portfolio totaled $1.1 billion gross of $292.3 million of accumulated
depreciation. Our net lease portfolio, including the carrying value of our equity method investments in SAFE and the Net Lease
Venture, totaled $1.3 billion. The table below provides certain statistics for our net lease portfolio.
Ownership %
Net book value (millions)
Accumulated depreciation (millions)
Gross carrying value (millions)
Occupancy
Square footage (thousands)
Weighted average lease term (years)
Weighted average yield
Consolidated
Real Estate
SAFE
Net Lease
Venture
100.0%
816
292
1,108
$
$
$
$
37.6%
490
(1) $
51.9%
597
(1)
7
497
$
48
645
97.9%
11,322
14.0
8.9%
100.0%
3,849
60.6
5.0% (2)
100.0%
4,238
19.0
8.5%
_______________________________________________________________________________
(1) Net book value represents the net book value of real estate and real estate-related intangibles.
(2) Represents the annualized asset yield.
39
Table of Contents
Operating Properties
As of December 31, 2017, our operating property portfolio, including equity method investments, totaled $628.7 million
gross of $55.1 million of accumulated depreciation, and was comprised of $580.2 million of commercial and $48.5 million of
residential real estate properties.
Commercial Operating Properties
Our commercial operating properties represent a diverse pool of assets across a broad range of geographies and collateral
types including office, retail and hotel properties. We generally seek to reposition our transitional properties with the objective of
maximizing their values through the infusion of capital and/or intensive asset management efforts resulting in value realization
upon sale.
The table below provides certain statistics for our commercial operating property portfolio.
Commercial Operating Property Statistics
($ in millions)
Stabilized Operating(1)
Transitional Operating(1)
Total
December 31,
2017
December 31,
2016
December 31,
2017
December 31,
2016
December 31,
2017
December 31,
2016
Gross carrying value
($mm)(2)
$
Occupancy(3)
Yield
427
$
337
$
153
$
189
$
580
$
85%
6.0%
86%
8.5%
61%
3.7%
54%
1.5%
78%
5.5%
526
74%
5.5%
______________________________________________________________
(1)
Stabilized commercial properties generally have occupancy levels above 80% and/or generate yields resulting in a sufficient return based upon the
properties’ risk profiles. Transitional commercial properties are generally those properties that do not meet these criteria.
Gross carrying value represents carrying value gross of accumulated depreciation.
Occupancy is as of December 31, 2017 and 2016.
(2)
(3)
Residential Operating Properties
As of December 31, 2017, our residential operating portfolio was comprised of 25 condominium units generally located
within luxury projects in major U.S. cities. The table below provides certain statistics for our residential operating property portfolio
(excluding fractional units).
Residential Operating Property Statistics
($ in millions)
For the Years Ended
December 31, 2017
December 31, 2016
Condominium units sold
Proceeds
Income from sales of real estate
$
$
23
35.3
4.5
$
$
91
96.2
26.1
40
Table of Contents
Land and Development
As of December 31, 2017, our land and development portfolio, including equity method investments, totaled $932.5 million
with seven projects in production, eight in development and 13 in the pre-development phase. These projects are collectively
entitled for approximately 12,500 lots and units. The following tables presents certain statistics for our land and development
portfolio.
Land and Development Portfolio Rollforward
(in millions)
Years Ended
December 31, 2017 December 31, 2016
$
$
(8.9)
945.6
(175.3)
Beginning balance
Asset sales(1)
Asset transfers in (out)(2)
Capital expenditures
Other(3)
Ending balance(4)
_______________________________________________________________________
(1)
(2)
(3)
(4)
(28.1)
127.0
860.3
$
$
1,002.0
(68.9)
(90.7)
109.5
(6.3)
945.6
Represents gross carrying value of the assets sold, rather than proceeds received.
Assets transferred into land and development segment or out to another segment.
For the years ended December 31, 2017 and 2016, includes $20.5 million and $3.8 million, respectively, of impairments.
Excludes $63.9 million and $84.8 million, respectively, of equity method investments as of December 31, 2017 and 2016.
Land and Development Statistics
(in millions)
Years Ended
December 31, 2017 December 31, 2016
Land development revenue
Land development cost of sales
Land development revenue less cost of
sales
Earnings from land development equity
method investments
Income from sales of real estate(1)
Total
$
$
$
196.9
$
180.9
16.0
$
7.3
—
23.3
$
88.3
62.0
26.3
30.0
8.8
65.1
_______________________________________________________________________
(1)
During the year ended December 31, 2016, we sold a land and development asset to a newly formed unconsolidated entity in which we own a 50.0%
equity interest and recognized a gain of $8.8 million, reflecting our share of the interest sold to a third party, which was recorded as "Income from sales
of real estate" in our consolidated statement of operations.
41
Table of Contents
Results of Operations for the Year Ended December 31, 2017 compared to the Year Ended December 31, 2016
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
(Recovery of) provision for 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 benefit (expense)
Income from discontinued operations
Gain from discontinued operations
Income from sales of real estate
Net income (loss)
For the Years Ended
December 31,
2017
2016
$ Change
% Change
(in thousands)
$
187,684
$
191,180
$
106,548
188,091
196,879
679,202
194,686
147,617
180,916
49,033
98,882
(5,828)
32,379
20,954
718,639
(14,724)
13,015
948
4,939
123,418
92,049
129,153
46,514
88,340
455,187
221,398
137,522
62,007
51,660
84,027
(12,514)
14,484
5,883
564,467
(1,619)
77,349
10,166
18,270
—
105,296
$
180,208
$
100,182
$
(3,496)
(22,605)
141,577
108,539
224,015
(26,712)
10,095
118,909
(2,627)
14,855
6,686
17,895
15,071
154,172
(13,105)
(64,334)
(9,218)
(13,331)
123,418
(13,247)
80,026
(2)%
(18)%
>100%
>100%
49 %
(12)%
7 %
>100%
(5)%
18 %
(53)%
>100%
>100%
27 %
>100%
(83)%
(91)%
(73)%
100 %
(13)%
80 %
Revenue—Operating lease income, which primarily includes income from net lease assets and commercial operating
properties, decreased to $187.7 million in 2017 from $191.2 million in 2016. The following tables summarizes our operating lease
income by segment ($ in millions).
2016
Change
Reason for Change
(2.5) Primarily due to the sale of net lease assets.
(1.4) Primarily due to the sale of operating properties
partially offset by the execution of new leases.
0.4
(3.5)
Net Lease
Operating Properties
Land and Development
2017
$ 123.7
63.2
0.8
$
126.2
$
64.6
0.4
Total
$ 187.7
$
191.2
$
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Table of Contents
The following table shows certain same store statistics for our Net Lease and Operating Properties segments. Same store
assets are defined as assets we owned on or prior to January 1, 2016 and were in service through December 31, 2017 (Operating
lease income in millions).
Operating lease income
Net Lease
Operating Properties
Rent per square foot
Net Lease
Operating Properties
Occupancy(1)
Net Lease
Operating Properties
2017
2016
$
$
$
$
113.7
46.4
10.26
24.25
$
$
$
$
111.4
45.2
10.08
24.50
97.9%
75.4%
97.6%
72.7%
______________________________________________________________
(1) Occupancy is as of December 31, 2017 and 2016.
Interest income decreased to $106.5 million in 2017 from $129.2 million in 2016. The decrease in interest income was due
primarily to a decrease in the average balance of our performing loans to $1.07 billion for 2017 from $1.40 billion for 2016. The
weighted average yield of our performing loans increased to 9.8% for 2017 from 8.9% for 2016.
Other income increased to $188.1 million in 2017 from $46.5 million in 2016. Other income in 2017 primarily consisted of
interest income and real estate tax reimbursements resulting from the settlement of the Bevard litigation (refer to Note11), income
from our hotel properties and other ancillary income from our operating properties. Other income in 2016 consisted of income
from our hotel properties, loan prepayment fees and property tax refunds.
Land development revenue and cost of sales—In 2017, we sold residential lots and units and one land parcel totaling 1,250
acres and recognized land development revenue of $196.9 million which had associated cost of sales of $180.9 million. In 2016,
we sold residential lots and units and recognized land development revenue of $88.3 million which had associated cost of sales
of $62.0 million. The increase in 2017 from 2016 was primarily due to the resolution of the Bevard litigation, which resulted in
us recognizing $114.0 million of land development revenue and $106.3 million of land development cost of sales (refer to Note
11).
Costs and expenses—Interest expense decreased to $194.7 million in 2017 from $221.4 million in 2016. The decrease in
interest expense was due to a decrease in the balance of our average outstanding debt, which decreased to $3.58 billion for 2017
from $4.00 billion for 2016. Our weighted average cost of debt was 5.6% for 2017 and 5.6% for 2016.
Real estate expenses increased to $147.6 million in 2017 from $137.5 million in 2016. The increase was due to expenses for
commercial operating properties, which increased to $83.4 million in 2017 from $73.6 million in 2016. This increase was primarily
due to an increase in expenses at our hotel properties and expenses incurred at properties impacted by the hurricanes that hit the
United States. These increases were partially offset by property sales in 2017 and 2016. Expenses associated with residential units
decreased to $6.3 million in 2017 from $8.8 million in 2016 due to unit sales. Expenses for same store commercial operating
properties, excluding hotels, increased to $30.9 million in 2017 from $30.2 million in 2016. Expenses for net lease assets decreased
to $16.7 million in 2017 from $18.2 million in 2016 primarily due to asset sales. Expenses for same store net lease assets increased
to $14.9 million in 2017 from $13.5 million in 2016. Carry costs and other expenses on our land and development assets increased
to $41.2 million in 2017 from $37.0 million in 2016.
Depreciation and amortization decreased to $49.0 million in 2017 from $51.7 million for the same period in 2016. The
decrease was primarily due to the sale of net lease assets and commercial operating properties in 2017 and 2016.
General and administrative expenses increased to $98.9 million in 2017 from $84.0 million in 2016. The increase was
primarily due to an increase in compensation expense related to performance incentive plans.
Recovery of loan losses was $5.8 million in 2017 as compared to a net recovery of loan losses of $12.5 million in 2016. The
recovery of loan losses in 2017 resulted from a reduction in the general reserve due to an overall improvement in the risk ratings
43
Table of Contents
of our loan portfolio. The net recovery of loan losses in 2016 included recoveries of specific reserves of $13.7 million and a
decrease in the general reserve of $12.7 million, partially offset by new specific reserves of $13.9 million.
In 2017, we recorded impairments of $32.4 million on land and development and real estate assets. The impairments recorded
in 2017 were primarily the result of impairments on land and development assets of $20.5 million resulting from a decrease in
expected cash flows on one asset and a change in exit strategy on another asset. We also recorded impairments of $11.9 million
on real estate assets due to shifting demand in the local condominium markets and changes in our exit strategy on other real estate
assets. In 2016, we recorded impairments on real estate assets totaling $14.5 million comprised of $3.8 million on a land asset
resulting from a change in business strategy, $5.8 million on residential operating properties resulting from unfavorable local
market conditions and $4.9 million on the sale of net lease assets.
Other expense increased to $21.0 million in 2017 from $5.9 million in 2016. The increase was primarily the result of paying
organization and offering costs associated with the initial public offering of SAFE (refer to Note 7) and costs incurred in connection
with the repricing of our 2016 Senior Secured Credit Facility (refer to Note 10) recorded in 2017.
Loss on early extinguishment of debt, net—In 2017 and 2016, we incurred losses on early extinguishment of debt of $14.7
million and $1.6 million, respectively. In 2017, we incurred losses on early extinguishment of debt primarily resulting from
repayments of unsecured notes prior to maturity and the repricing of our 2016 Senior Secured Credit Facility. In 2016, we incurred
losses on the early extinguishment of debt primarily related to repayments of secured facilities and unsecured notes prior to maturity.
Earnings from equity method investments—Earnings from equity method investments decreased to $13.0 million in 2017
from $77.3 million in 2016. In 2017, we recognized $4.7 million primarily from profit participations on a land development venture,
$4.5 million related to operations at our Net Lease Venture, $2.6 million related to sales activity on a land development venture
and $1.2 million was aggregate income from our remaining equity method investments. In 2016, we recognized $33.2 million
primarily from the sale of an equity method investment in a commercial operating property, we recognized $11.6 million of earnings
primarily from the non-callable distribution of non-recourse financing proceeds in excess of our carrying value at one of our land
equity method investments, $22.1 million related to sales activity on a land development venture, $3.6 million related to leasing
operations at our Net Lease Venture and $6.8 million was aggregate income from our remaining equity method investments.
Income tax (expense) benefit—Income taxes are primarily generated by assets held in our TRS. An income tax benefit of
$0.9 million was recorded in 2017 and a $10.2 million income tax benefit was recorded in 2016. The Tax Cuts and Jobs Act
eliminated the corporate alternative minimum tax and grants corporations a refundable credit for prior years’ minimum taxes paid.
The income tax benefit for 2017 primarily relates to the credit for prior year’s minimum taxes generated in 2015 and 2014 for
which we expect to receive refunds from changes made by the Tax Cuts and Jobs Act to the corporate alternative minimum tax.
The income tax benefit for 2016 primarily related to taxable losses generated from sales of certain TRS properties.
We also incurred a tax liability in 2017 for $6.1 million of alternative minimum tax imposed at the REIT level. The Tax
Cuts and Jobs Act, however, permits us to claim a refundable credit for prior year’s minimum taxes over the next four years.
Therefore, we have no net income tax expense or benefit in our consolidated statement of operations at the REIT level for our
2017 tax liability.
Income from discontinued operations—In April 2017, two institutional investors acquired a controlling interest in our
ground lease business through the merger of one of our subsidiaries and related transactions. Income from discontinued operations
represents the operating results from the properties comprising our ground lease business.
Gain from discontinued operations—In April 2017, two institutional investors acquired a controlling interest in our ground
lease business through the merger of one of our subsidiaries and related transactions. We accounted for this transaction as an in
substance sale of real estate and recognized a gain of $123.4 million, reflecting the aggregate gain less the fair value of our retained
interest in SAFE.
44
Table of Contents
Income from sales of real estate—Income from sales of real estate decreased to $92.0 million in 2017 from $105.3 million
in 2016. The following table presents our income from sales of real estate by segment ($ in millions).
Net Lease
Operating Properties
Land and Development(1)
Total income from sales of real estate
2017
2016
87.5
$
4.5
—
92.0
$
21.1
75.4
8.8
105.3
$
$
_______________________________________________________________________________
(1) During the year ended December 31, 2016, we sold a land and development asset to a newly formed unconsolidated entity in which we own a 50.0% equity
interest and recognized a gain on sale of $8.8 million, reflecting our share of the interest sold to a third party.
Results of Operations for the Year Ended December 31, 2016 compared to the Year Ended December 31, 2015
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
(Recovery of) provision for 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 benefit (expense)
Income from discontinued operations
Income from sales of real estate
Net income (loss)
For the Years Ended
December 31,
2016
2015
$ Change
% Change
(in thousands)
$
191,180
$
211,207
$
129,153
46,514
88,340
455,187
221,398
137,522
62,007
51,660
84,027
(12,514)
14,484
5,883
564,467
(1,619)
77,349
10,166
18,270
105,296
$
100,182
$
134,687
49,924
100,216
496,034
224,639
146,509
67,382
62,045
81,277
36,567
10,524
6,374
635,317
(281)
32,153
(7,639)
15,077
93,816
(6,157) $
(20,027)
(5,534)
(3,410)
(11,876)
(40,847)
(3,241)
(8,987)
(5,375)
(10,385)
2,750
(49,081)
3,960
(491)
(70,850)
(1,338)
45,196
17,805
3,193
11,480
(9)%
(4)%
(7)%
(12)%
(8)%
(1)%
(6)%
(8)%
(17)%
3 %
<(100%)
38 %
(8)%
(11)%
>100%
>100%
<(100%)
21 %
12 %
106,339
<(100%)
Revenue—Operating lease income, which primarily includes income from net lease assets and commercial operating
properties, decreased to $191.2 million in 2016 from $211.2 million in 2015. The following tables summarizes our operating lease
income by segment ($ in millions).
Net Lease
$ 126.2
$
133.0
$
(6.8) Primarily due to the sale of net lease assets, partially
2016
2015
Change
Reason for Change
Operating Properties
64.6
77.5
offset by leasing activity.
(12.9) Primarily due to the sale of commercial operating
properties, partially offset by the execution of new
leases.
Land and Development
0.4
0.7
Total
$ 191.2
$
211.2
$
(0.3)
(20.0)
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The following table shows certain same store statistics for our Net Lease and Operating Properties segments. Same store
assets are defined as assets we owned on or prior to January 1, 2015 and were in service through December 31, 2016 (Operating
lease income in millions).
Operating lease income
Net Lease
Operating Properties
Rent per square foot
Net Lease
Operating Properties
Occupancy(1)
Net Lease
Operating Properties
2016
2015
$
$
$
$
120.9
45.2
10.25
24.62
$
$
$
$
118.1
42.1
9.99
22.92
97.7%
70.2%
97.9%
71.5%
________________________________________
(1) Occupancy is as of December 31, 2016 and 2015.
Interest income decreased to $129.2 million in 2016 from $134.7 million in 2015. The decrease in interest income was due
primarily to a decrease in the average balance of our performing loans to $1.40 billion for 2016 from $1.52 billion for 2015. The
weighted average yield of our performing loans increased to 8.9% for 2016 from 8.8% for 2015.
Other income decreased to $46.5 million in 2016 from $49.9 million in 2015. The decrease in 2016 was primarily due to a
financing commitment termination fee, lease termination fees and a guarantor settlement on an operating property recognized in
2015, partially offset by an increase in hotel income in 2016.
Land development revenue and cost of sales—In 2016, we sold residential lots, units and parcels for proceeds of $88.3
million which had associated cost of sales of $62.0 million. In 2015, we sold residential lots and units for proceeds of $100.2
million which had associated cost of sales of $67.4 million. The decrease in 2016 from 2015 was primarily due to the bulk sale
of two land parcels in 2015.
Costs and expenses—Interest expense decreased to $221.4 million in 2016 from $224.6 million in 2015. The decrease in
interest expense was due to a lower average outstanding debt balance, partially offset by a higher weighted average cost of debt.
The average outstanding balance of our debt decreased to $4.00 billion for 2016 from $4.18 billion for 2015. Our weighted average
cost of debt increased to 5.6% for 2016 from 5.4% for 2015.
Real estate expenses decreased to $137.5 million in 2016 from $146.5 million in 2015. The decrease was due primarily to
a decline in expenses for commercial operating properties to $73.6 million in 2016 from $81.7 million in 2015 due primarily to
the sale of operating properties in 2016 and 2015. Expenses associated with residential units decreased to $8.8 million in 2016
from $14.2 million in 2015 due to unit sales. Expenses for same store commercial operating properties, excluding hotels, increased
slightly to $30.2 million in 2016 from $29.6 million in 2015. Expenses for net lease assets decreased to $18.2 million in 2016
from $21.6 million in 2015. This decrease was primarily due to asset sales during 2015 and 2016. Expenses for same store net
lease assets decreased to $16.3 million in 2016 from $16.8 million in 2015. Carry costs and other expenses on our land and
development assets increased to $37.0 million in 2016 from $29.0 million in 2015, primarily related to an increase in costs incurred
on certain land and development projects prior to development and an increase in marketing costs.
Depreciation and amortization decreased to $51.7 million in 2016 from $62.0 million for the same period in 2015. The
decrease was primarily due to the sale of net lease assets and commercial operating properties in 2015 and 2016.
General and administrative expenses increased to $84.0 million in 2016 from $81.3 million in 2015. The increase was
primarily due to an increase in payroll related costs.
Net recovery of loan losses was $12.5 million in 2016 as compared to a net provision for loan losses of $36.6 million in
2015. Included in the net recovery for 2016 were recoveries of specific reserves of $13.7 million and a decrease in the general
reserve of $12.7 million, partially offset by new specific reserves of $13.9 million. Included in the net provision for 2015 were
provisions for specific reserves of $34.1 million due primarily to one new nonperforming loan and an increase in the general
reserve of $2.5 million due primarily to new investment originations.
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In 2016, we recorded impairments of $14.5 million comprised of $3.8 million on a land asset resulting from a change in
business strategy, $5.8 million on residential operating properties resulting from unfavorable local market conditions and $4.9
million on the sale of net lease assets. 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 unfavorable local
market conditions for one residential property.
Other expense decreased to $5.9 million in 2016 from $6.4 million in 2015. The decrease was primarily the result of costs
recognized in 2015 due to a decrease in the fair value of an interest rate cap that was not designated as a cash flow hedge, partially
offset by third party expenses incurred in 2016 in connection with the refinancing of our 2012 Secured Tranche A-2 Facility with
our 2016 Senior Secured Credit Facility (see "Liquidity and Capital Resources").
Loss on early extinguishment of debt, net—In 2016 and 2015, we incurred losses on early extinguishment of debt of $1.6
million and $0.3 million, respectively. In 2016, we incurred losses on early extinguishment of debt resulting from repayments of
our 2012 Secured Tranche A-2 Facility and unsecured notes prior to maturity. 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
Tranche A-2 Facility.
Earnings from equity method investments—Earnings from equity method investments increased to $77.3 million in 2016
from $32.2 million in 2015. In 2016, we recognized $33.2 million primarily from the sale of an equity method investment in a
commercial operating property, we recognized $11.6 million of earnings primarily from the non-callable distribution of non-
recourse financing proceeds in excess of our carrying value at one of our land equity method investments, $22.1 million related
to sales activity on a land development venture, $3.6 million related to leasing operations at our Net Lease Venture and $6.8 million
was aggregate income from our remaining equity method investments. 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 earnings from our remaining equity method investments.
Income tax (expense) benefit—Income taxes are primarily generated by assets held in our TRS. An income tax benefit of
$10.2 million was recorded in 2016 and a $7.6 million income tax expense was recorded in 2015. The income tax benefit for 2016
primarily related to taxable losses generated from sales of certain TRS properties. The income tax expense for 2015 primarily
related to taxable income generated from the sales of certain TRS properties. In each period, different TRS properties were sold,
each with a unique tax basis and sales value. The benefit, therefore, recognized in the current period differs from the expense
incurred during the same period in the previous year.
Income from discontinued operations—In April 2017, two institutional investors acquired a controlling interest in our
ground lease business through the merger of one of our subsidiaries and related transactions. Income from discontinued operations
represents the operating results from the properties comprising our ground lease business.
Income from sales of real estate—Income from sales of real estate increased to $105.3 million in 2016 from $93.8 million
in 2015. The following table presents our income from sales of real estate by segment ($ in millions).
Operating Properties(1)
Net Lease
Land and Development(2)
Total income from sales of real estate
2016
2015
$
$
$
75.4
21.1
8.8
105.3
$
53.7
40.1
—
93.8
_______________________________________________________________________________
(1) During the year ended December 31, 2015, we sold a commercial operating property for $68.5 million to a newly formed unconsolidated entity in which
we own a 50.0% equity interest (refer to Note 7). We recognized a gain on sale of $13.6 million, reflecting our share of the interest sold to a third party.
(2) During the year ended December 31, 2016, we sold a land and development asset to a newly formed unconsolidated entity in which we own a 50.0% equity
interest and recognized a gain on sale of $8.8 million, reflecting our share of the interest sold to a third party.
Adjusted Income
In addition to net income (loss) prepared in conformity with generally accepted accounting principles in the United States
of America ("GAAP"), we use adjusted income, a non-GAAP financial measure, to measure our operating performance. Adjusted
income is used internally as a supplemental performance measure adjusting for certain non-cash GAAP measures to give
management a view of income more directly derived from current period activity. Until the second quarter 2016, adjusted income
was calculated as net income (loss) allocable to common shareholders, prior to the effect of depreciation and amortization, provision
for (recovery of) loan losses, impairment of assets, stock-based compensation expense, and the non-cash portion of gain (loss) on
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early extinguishment of debt. Effective in the second quarter 2016, we modified our presentation of adjusted income to reflect the
effect of gains or losses on charge-offs and dispositions on carrying value gross of loan loss reserves and impairments ("Adjusted
Income"). In the third quarter 2017, we modified our presentation of Adjusted Income to exclude the effect of the amount of the
liquidation preference that was recorded as a premium above book value on the redemption of preferred stock (refer to Note 13)
and the imputed non-cash interest expense recognized for the conversion feature of our senior convertible notes (refer to Note 10).
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),
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 we use to analyze our business performance because it excludes the effects of certain non-cash charges
that we believe are not necessarily indicative of our operating performance while including the effect of gains or losses on
investments when realized. It should be noted that our manner of calculating Adjusted Income may differ from the calculations of
similarly-titled measures by other companies.
For the Years Ended
December 31,
2017
2016
Adjusted Income
Net income (loss) allocable to common shareholders
Add: Depreciation and amortization(1)
Add/Less: (Recovery of) provision for loan losses
Add: Impairment of assets(2)
Add: Stock-based compensation expense
Add: Loss on early extinguishment of debt, net
Add: Non-cash interest expense on senior convertible notes
Add: Premium on redemption of preferred stock
Less: Losses on charge-offs and dispositions(3)
Less: Participating Security allocation
$
$ 110,924
60,828
(5,828)
32,379
18,812
3,065
1,255
16,314
(23,130)
—
43,972
64,447
(12,514)
18,999
10,889
1,619
—
—
(14,827)
(23)
$ 112,562
Adjusted income allocable to common shareholders
$ 214,619
_______________________________________________________________________________
(1)
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.
For the year ended December 31, 2016, impairment of assets includes impairments on equity method investments recorded in "Earnings from equity
method investments" in our consolidated statements of operations.
Represents the impact of charge-offs and dispositions realized during the period. These charge-offs and dispositions were on assets that were previously
impaired for GAAP and reflected in net income but not in Adjusted Income.
(2)
(3)
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Liquidity and Capital Resources
During the year ended December 31, 2017, we committed to new investments totaling $806.0 million and invested $956.9
million in new investments, prior financing commitments and ongoing development. Total investments included $618.5 million
in real estate finance, $133.2 million to develop our land and development assets, $73.4 million of capital to reposition or redevelop
our operating properties, $131.7 million to invest in net lease assets and $0.1 million in other investments. Also during the year
ended December 31, 2017, we generated $1,268.8 million from loan repayments and asset sales within our portfolio, comprised
of $722.0 million from real estate finance, $42.8 million from operating properties, $248.7 million from net lease assets, $234.7
million from land and development assets and $20.6 million from other investments. These amounts are inclusive of fundings and
proceeds from both consolidated investments and our pro rata share from equity method investments.
The following table outlines our capital expenditures on real estate and land and development assets as reflected in our
consolidated statements of cash flows for the years ended December 31, 2017 and 2016, by segment ($ in thousands):
Operating Properties
Net Lease
Total capital expenditures on real estate assets
Land and Development
Total capital expenditures on land and development assets
For the Years Ended December 31,
2017
2016
33,774
3,293
37,067
121,400
121,400
$
$
$
$
65,934
3,876
69,810
103,806
103,806
$
$
$
$
As of December 31, 2017, we had unrestricted cash of $657.7 million. Our primary cash uses over the next 12 months are
expected to be funding of investments, capital expenditures and funding ongoing business operations. Over the next 12 months,
we currently expect to fund in the range of approximately $175 million to $225 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 residential development activities which are expected to include approximately $100 million in vertical
construction. The amount spent will depend on the pace of our development activities as well as the extent to which we strategically
partner with others to complete these projects. As of December 31, 2017, we also had approximately $389 million of maximum
unfunded commitments 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 and proceeds from asset sales.
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 financial results.
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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, 2017 (see Item 8—"Financial Statements and
Supplemental Data—Note 10").
Total
Less Than 1
Year
1 - 3
Years
3 - 5
Years
5 - 10
Years
After 10
Years
Amounts Due By Period
(in thousands)
Long-Term Debt Obligations:
Unsecured notes
Secured credit facilities
Revolving credit facility
Mortgages
Trust preferred securities
Total principal maturities
Interest Payable(1)
Loan Participations Payable(2)
Operating Lease Obligations
Total
$ 2,507,500
399,000
325,000
208,491
100,000
3,539,991
661,364
102,737
17,891
$ 4,321,983
$
— $ 1,170,000
8,000
325,000
18,219
—
1,521,219
302,973
8,955
7,731
$ 1,840,878
4,000
—
9,481
—
13,481
173,751
93,782
4,971
$ 285,985
$ 1,337,500
387,000
—
164,697
—
1,889,197
140,745
—
2,275
$ 2,032,217
$
$
— $
—
—
16,094
—
16,094
17,974
—
2,914
36,982
—
—
—
—
100,000
100,000
25,921
—
—
$ 125,921
_______________________________________________________________________________
(1)
(2)
Variable-rate debt assumes 1-month LIBOR of 1.56% and 3-month LIBOR of 1.69% that were in effect as of December 31, 2017.
Refer to Note 9 to the consolidated financial statements.
2017 Secured Financing—In March 2017, the predecessor of SAFE (which at the time was comprised of our wholly-owned
subsidiaries conducting our Ground Lease business) entered into a $227.0 million secured financing transaction (the "2017 Secured
Financing") that accrued interest at 3.795% and matures in April 2027. The 2017 Secured Financing was collateralized by the 12
properties comprising SAFE's initial portfolio. In connection with the 2017 Secured Financing, we incurred $7.3 million of lender
and third-party fees, substantially all of which was capitalized in "Debt obligations, net" on our consolidated balance sheets. In
April 2017, we derecognized the 2017 Secured Financing when third parties acquired a controlling interest in SAFE's predecessor,
prior to SAFE's initial public offering (refer to Note 4).
2016 Senior Secured Credit Facility—In June 2016, we entered into a senior secured credit facility of $450.0 million (the
"2016 Senior Secured Credit Facility"). In August 2016, we upsized the facility to $500.0 million. The initial $450.0 million of
the 2016 Senior Secured Credit Facility was issued at 99% of par and the upsize was issued at par. In January 2017, we repriced
the 2016 Senior Secured Credit Facility to LIBOR plus 3.75% with a 1.00% LIBOR floor from LIBOR plus 4.50% with a 1.00%
LIBOR floor. In September 2017, we downsized, repriced and extended the 2016 Senior Secured Credit Facility to $400.0 million
priced at LIBOR plus 3.00% with a 0.75% LIBOR floor and maturing in October 2021. These transactions resulted in an aggregate
1.50% reduction in price.
The 2016 Senior Secured Credit Facility is collateralized 1.25x by a first lien on a fixed pool of assets. Proceeds from principal
repayments and sales of collateral are applied to amortize the 2016 Senior Secured Credit Facility. Proceeds received for interest,
rent, lease payments and fee income are retained by us. We may also make optional prepayments, subject to prepayment fees, and
are required to repay 0.25% of the principal amount outstanding on the first business day of each quarter.
2015 Secured Revolving Credit Facility—In March 2015, we entered into our 2015 Secured Revolving Credit Facility. In
September 2017, we upsized the 2015 Secured Revolving Credit Facility to $325.0 million, added additional lenders to the syndicate,
extended the maturity date to September 2020 and made certain other changes. 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 0.30% to 0.50% based on corporate credit ratings. At maturity,
we may convert outstanding borrowings to a one year term loan which matures in quarterly installments through September 2021.
Unsecured Notes—In September 2017, we issued $400.0 million principal amount of 4.625% senior unsecured notes due
September 2020, $400.0 million principal amount of 5.25% senior unsecured notes due September 2022 and $250.0 million of
3.125% Convertible Notes due September 2022. Proceeds from these offerings, together with cash on hand, were used to repay
in full the $550.0 million principal amount outstanding of the 4.0% senior unsecured notes due November 2017, the $300.0 million
principal amount outstanding of the 7.125% senior unsecured notes due February 2018 and the $300.0 million principal amount
outstanding of the 4.875% senior unsecured notes due July 2018. In addition, the initial purchasers of the 3.125% Convertible
Notes exercised their option to purchase an additional $37.5 million aggregate principal amount of the 3.125% Convertible Notes.
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In March 2017, we issued $375.0 million principal amount of 6.00% senior unsecured notes due April 2022. Proceeds
from the offering were primarily used to repay in full the $99.7 million principal amount outstanding of the 5.85% senior unsecured
notes due March 2017 and repay in full the $275.0 million principal amount outstanding of the 9.00% senior unsecured notes due
June 2017 prior to maturity. In March 2016, we repaid the $261.4 million principal amount outstanding of the 5.875% senior
unsecured notes at maturity using available cash. In addition, we issued $275.0 million principal amount of 6.50% senior unsecured
notes due July 2021. Proceeds from the offering were primarily used to repay in full the $265.0 million principal amount outstanding
of the senior unsecured notes due July 2016 and repay $5.0 million of the 2015 Secured Revolving Credit Facility.
Collateral Assets—As of December 31, 2017 and 2016, the carrying value of assets that are directly pledged or are held by
subsidiaries whose equity is pledged as collateral to secure our obligations under our secured debt facilities are as follows, by asset
type ($ in thousands):
Real estate, net
Real estate available and held for sale
Land and development, net
Loans receivable and other lending investments, net(2)(3)
Other investments
Cash and other assets
Total
As of December 31,
2017
2016
Collateral
Assets(1)
Non-Collateral
Assets
Collateral
Assets(1)
Non-Collateral
Assets
$
$
795,321
20,069
25,100
194,529
—
—
1,035,019
$
$
486,710
48,519
835,211
1,021,340
321,241
898,252
3,611,273
$
$
881,212
—
35,165
172,581
—
—
1,088,958
$
$
506,062
237,531
910,400
1,142,050
214,406
590,299
3,600,748
___________________________________________________________
(1)
The 2016 Senior Secured Credit Facility and the 2015 Secured Revolving Credit Facility are secured only by pledges of equity of certain of our
subsidiaries and not by pledges of the assets held by such subsidiaries. Such subsidiaries are subject to contractual restrictions under the terms of such
credit facilities, including restrictions on incurring new debt (subject to certain exceptions).
As of December 31, 2017 and 2016, the amounts presented exclude general reserves for loan losses of $17.5 million and $23.3 million, respectively.
As of December 31, 2017 and 2016, the amounts presented exclude loan participations of $102.3 million and $159.1 million, respectively.
(2)
(3)
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, as such terms are defined in the indentures governing the debt securities, 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 percentage of the bondholders. If our ability
to incur additional indebtedness under the fixed charge coverage ratio is limited, we are permitted to incur indebtedness for the
purpose of refinancing existing indebtedness and for other permitted purposes under the indentures.
The 2016 Senior Secured Credit Facility and the 2015 Secured 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 2016 Senior
Secured Credit Facility requires us to maintain collateral coverage of at least 1.25x outstanding borrowings on the facility. The
2015 Secured Revolving Credit Facility is secured by a borrowing base of assets and requires us 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 Secured 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 borrowings or substitute assets in the borrowing base. In addition, for so long as we
maintain our qualification as a REIT, the 2016 Senior Secured Credit Facility and the 2015 Secured Revolving Credit Facility
permit us to distribute 100% of our REIT taxable income on an annual basis (prior to deducting certain cumulative NOL
carryforwards).
Derivatives—Our use of derivative financial instruments is primarily 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 Item 8—"Financial Statements and Supplemental Data—Note 12" for further details.
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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 Item 8—"Financial Statements and Supplemental
Data—Note 7" for further details of our unconsolidated investments. Our maximum exposure to loss from these investments is
limited to the carrying value of our investments and any unfunded commitments (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 arrangements as Performance-Based Commitments. In addition, we have committed to invest capital in several real
estate funds and other ventures. These arrangements are referred to as Strategic Investments. As of December 31, 2017, 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 and that 100% of our capital committed to Strategic Investments is drawn down, are
as follows (in thousands):
Performance-Based Commitments
Strategic Investments
Total
Loans and Other
Lending
Investments(1)
Real Estate
Other
Investments
$
$
338,290
—
338,290
$
$
10,934
—
10,934
$
$
28,585
10,743
39,328
$
$
Total
377,809
10,743
388,552
_______________________________________________________________________________
(1)
Excludes $102.1 million of commitments on loan participations sold that are not our obligation.
Stock Repurchase Program—As of December 31, 2017, we had authorization to repurchase up to $50.0 million of common
stock from time to time in open market or privately negotiated transactions, including pursuant to one or more trading plans. In
December 2017, the Company entered into a 10b5-1 plan (the "10b5-1 Plan") in accordance with Rule 10b5-1 under the Securities
and Exchange Act of 1934, as amended, to facilitate repurchases. Whether and how many shares will be repurchased is uncertain
and dependent on prevailing market prices and trading volumes, which we cannot predict. During the year ended December 31,
2016, we repurchased 10.2 million shares of our common stock for $98.4 million, at an average cost of $9.67 per share. During
the year ended December 31, 2015, we repurchased 5.7 million shares of our common stock for $70.4 million, at an average cost
of $12.25 per share.
In addition, in connection with the sale of the 3.125% Convertible Notes in September 2017 (refer to Note 10), we repurchased
4.0 million shares of our common stock for $45.9 million at an average cost of $11.51 per share in privately negotiated transactions
with purchasers of the 3.125% Convertible Notes.
Preferred Equity—In October 2017, we redeemed our Series E and Series F preferred stock at par for the aggregate liquidation
preference of $240.0 million plus accrued dividends to the redemption date (refer to Note 13).
Critical Accounting Estimates
The preparation of financial statements in accordance with GAAP requires management to make estimates and judgments
in certain circumstances 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 consistently from period to period. We base our estimates on historical corporate and
industry experience and various other assumptions that we believe to be appropriate under the circumstances. For all of these
estimates, we caution that future events rarely develop exactly as forecasted, and, therefore, routinely require adjustment.
During 2017, management reviewed and evaluated these critical accounting estimates and believes they are appropriate.
Our significant accounting policies are described in Item 8—"Financial Statements and Supplemental Data—Note 3." 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 management'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
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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 quality 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 segmented 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 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 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 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
we grant a concession 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 (recovery of) provision for loan losses for the years ended December 31, 2017, 2016 and 2015 were $(5.8) million,
$(12.5) million and $36.6 million, respectively. The total reserve for loan losses as of December 31, 2017 and 2016, included asset
specific reserves of $61.0 million and $62.2 million, respectively, and general reserves of $17.5 million and $23.3 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, net" 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 classified 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, 2016 and 2015, we received title to properties in satisfaction of mortgage loans with
fair values of $40.6 million and $13.4 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 available 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
53
Table of Contents
impairment charge. Impairment for real estate assets 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.
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 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 and prospects, 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 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, 2017, we recorded impairments on real estate and land and development assets totaling
$32.4 million. The impairments recorded in 2017 were primarily the result of impairments on land and development assets of
$20.5 million resulting from a decrease in expected cash flows on one asset and a change in exit strategy on another asset, and
impairments of $11.9 million on real estate assets due to shifting demand in the local condominium markets and changes in our
exit strategy on other real estate assets. During the years ended December 31, 2016 and 2015, we recorded impairments on real
estate and land and development assets totaling $14.5 million and $10.5 million, respectively, resulting from unfavorable local
market conditions, sales of net lease assets and changes in business strategy for certain assets.
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, 2017, 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 carryforwards. We evaluate our ability to realize 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 our ability to realize our deferred tax assets, we consider, among other
matters, estimates of expected future taxable 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 analysis is inherently
subjective, as it requires us to forecast our business and general economic environment in future periods. Changes in estimate of
our ability to realize our deferred tax asset, 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 $63.3 million and $66.5 million as of December 31,
2017 and 2016, 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 beneficiary. 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 decisions 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.
54
Table of Contents
See Item 8—"Financial Statements and Supplemental Data—Note 16" 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.
55
Table of Contents
Item 7a. Quantitative and Qualitative Disclosures about Market Risk
Market Risks
Market risk is the exposure to loss resulting from changes in interest 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 economic 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 governmental 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 annual net income should interest rates increase by 10, 50 or 100
basis points and decrease by 10 or 50 basis points, assuming no change in our interest earning assets, interest bearing liabilities
or the shape of the yield curve (i.e., relative interest rates). The base interest rate scenario assumes the one-month LIBOR rate of
1.56% as of December 31, 2017. Actual results could differ significantly from those estimated in the table.
Estimated Change In Net Income
($ in thousands)
Change in Interest Rates
-100 Basis Points
-50 Basis Points
-10 Basis Points
Base Interest Rate
+10 Basis Points
+50 Basis Points
+100 Basis Points
$
Net Income(1)
(7,166)
(3,214)
(643)
—
643
3,214
6,429
______________________________________________________________________________
(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, 2017, $416.6 million of our floating rate loans have a cumulative weighted average LIBOR floor of 0.3% and $501.7 million
of our floating rate debt has a cumulative weighted average interest rate floor of 0.7%.
56
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Item 8. Financial Statements and Supplemental Data
Index to Financial Statements
Report of Independent Registered Public Accounting Firm
Financial Statements:
Consolidated Balance Sheets as of December 31, 2017 and 2016
Consolidated Statements of Operations for the years ended December 31, 2017, 2016 and 2015
Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2017, 2016 and
2015
Consolidated Statements of Changes in Equity for the years ended December 31, 2017, 2016 and 2015
Consolidated Statements of Cash Flows for the years ended December 31, 2017, 2016 and 2015
Notes to Consolidated Financial Statements
Financial Statement Schedules:
Schedule II—Valuation and Qualifying Accounts and Reserves as of December 31, 2017 with reconciliations
for the years ended December 31, 2017, 2016 and 2015
Schedule III—Real Estate and Accumulated Depreciation as of December 31, 2017 with reconciliations for
the years ended December 31, 2017, 2016 and 2015
Schedule IV—Mortgage Loans on Real Estate as of December 31, 2017 with reconciliations for the years
ended December 31, 2017, 2016 and 2015
Page
58
60
61
62
63
65
66
117
118
132
All other schedules are omitted because they are not applicable or the required information is shown in the financial statements
or notes thereto.
57
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of iStar Inc.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of iStar Inc. and its subsidiaries as of December 31, 2017 and
2016, and the related consolidated statements of operations, comprehensive income (loss), changes in equity, and cash flows for
each of the three years in the period ended December 31, 2017, including the related notes and financial statement schedules
listed in the accompanying index (collectively referred to as the “consolidated financial statements”). We also have audited the
Company's internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control -
Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial
position of the Company as of December 31, 2017 and 2016, and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 2017 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, 2017, based on criteria established in Internal Control - Integrated Framework (2013)
issued by the COSO.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal
control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included
in Management's Report on Internal Control over Financial Reporting appearing under item 9A. Our responsibility is to
express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial
reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight
Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S.
federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform
the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement,
whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material
respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement
of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.
Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated
financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal
control over financial reporting included obtaining an understanding 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 reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
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 policies and procedures
that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions 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
company; 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.
58
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 controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
PricewaterhouseCoopers LLP
New York, New York
February 26, 2018
We have served as the Company’s auditor since at least 1997. We have not determined the specific year we began serving as
auditor of the Company.
59
Table of Contents
iStar Inc.
Consolidated Balance Sheets
(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, net
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
Commitments and contingencies (refer to Note 11)
Redeemable noncontrolling interests
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)
Common Stock, $0.001 par value, 200,000 shares authorized, 68,236 and 72,042 shares
issued and outstanding as of December 31, 2017 and 2016, 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
As of December 31,
2017
2016
$
$
$
1,629,436
(347,405)
1,282,031
68,588
1,350,619
860,311
1,300,655
321,241
657,688
11,957
86,877
141,730
4,731,078
238,004
102,425
3,476,400
3,816,829
—
—
1,740,893
(353,619)
1,387,274
237,531
1,624,805
945,565
1,450,439
214,406
328,744
11,254
88,189
162,112
4,825,514
211,570
159,321
3,389,908
3,760,799
—
5,031
12
4
22
4
68
3,352,665
(2,470,564)
(2,482)
879,703
34,546
914,249
4,731,078
$
72
3,602,172
(2,581,488)
(4,218)
1,016,564
43,120
1,059,684
4,825,514
$
$
$
$
The accompanying notes are an integral part of the consolidated financial statements.
60
Table of Contents
iStar Inc.
Consolidated Statements of Operations
(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
(Recovery of) provision for 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
Income (loss) from continuing operations before income taxes
Income tax benefit (expense)
Income (loss) from continuing operations
Income 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)(2)
Net income (loss) allocable to common shareholders
Per common share data:
Income (loss) attributable to iStar Inc. from continuing operations:
Basic
Diluted
Net income (loss) attributable to iStar Inc.:
Basic
Diluted
Weighted average number of common shares:
Basic
Diluted
Per HPU share data(1):
Income (loss) attributable to iStar Inc. from operations—Basic and diluted
Net income (loss) attributable to iStar Inc.—Basic and diluted
Weighted average number of HPU share—Basic and diluted
For the Years Ended December 31,
2017
2016
2015
$
187,684
$
191,180
$
106,548
188,091
196,879
679,202
194,686
147,617
180,916
49,033
98,882
(5,828)
32,379
20,954
718,639
(39,437)
(14,724)
13,015
(41,146)
948
(40,198)
4,939
123,418
92,049
180,208
(4,526)
175,682
(64,758)
—
129,153
46,514
88,340
455,187
221,398
137,522
62,007
51,660
84,027
(12,514)
14,484
5,883
564,467
(109,280)
(1,619)
77,349
(33,550)
10,166
(23,384)
18,270
—
105,296
100,182
(4,876)
95,306
(51,320)
(14)
$
$
$
$
$
$
$
110,924
$
43,972
$
(0.25) $
(0.25) $
1.56
1.56
$
$
0.35
0.35
0.60
0.60
$
$
$
$
71,021
71,021
73,453
73,835
— $
— $
—
— $
— $
—
211,207
134,687
49,924
100,216
496,034
224,639
146,509
67,382
62,045
81,277
36,567
10,524
6,374
635,317
(139,283)
(281)
32,153
(107,411)
(7,639)
(115,050)
15,077
—
93,816
(6,157)
3,722
(2,435)
(51,320)
1,080
(52,675)
(0.79)
(0.79)
(0.62)
(0.62)
84,987
84,987
(153.67)
(120.00)
9
_______________________________________________________________________________
(1)
(2)
All of the Company's outstanding High Performance Units ("HPUs") were repurchased and retired on August 13, 2015 (refer to Note 13).
Participating Security holders are non-employee directors who hold common stock equivalents ("CSEs") 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.
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Table of Contents
iStar Inc.
Consolidated Statements of Comprehensive Income (Loss)
(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)
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.
For the Years Ended December 31,
2017
2016
2015
$
180,208
$
100,182
$
(6,157)
—
(168)
1,186
847
(129)
1,736
—
(2,576)
598
274
(85)
(154)
633
921
(532)
(1,202)
(491)
(3,880)
(10,037)
3,722
(6,315)
181,944
(4,526)
177,418
$
100,815
(4,876)
95,939
$
$
_______________________________________________________________________________
Reclassified to "Other income" in the Company's consolidated statements of operations.
(1)
Reclassified to "Interest expense" in the Company's consolidated statements of operations are $64, $217 and $456 for the years ended December 31,
(2)
2017, 2016 and 2015, respectively. Reclassified to "Earnings from equity method investments" in the Company's consolidated statements of operations
are $304, $381 and $465, respectively, for the years ended December 31, December 31, 2017, 2016 and 2015.
The accompanying notes are an integral part of the consolidated financial statements.
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Table of Contents
iStar Inc.
Consolidated Statements of Changes in Equity
For the Year Ended December 31, 2017
(In thousands)
iStar Inc. Shareholders' Equity
Preferred
Stock(1)
Preferred
Stock
Series J(1)
HPU's(2)
Common
Stock at
Par
Additional
Paid-In
Capital
Retained
Earnings
(Deficit)
Accumulated
Other
Comprehensive
Income (Loss)
Noncontrolling
Interests
Total
Equity
—
(3,880)
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(4)
Contributions from noncontrolling
interests
Distributions to noncontrolling interests(4)
Balance as of December 31, 2015
Dividends declared—preferred
Issuance of stock/restricted stock unit
amortization, net
Issuance of common stock for conversion
of senior unsecured convertible notes
Net income (loss) for the period(3)
Change in accumulated other
comprehensive income (loss)
Repurchase of stock
Change in additional paid in capital
attributable to redeemable noncontrolling
interests
Contributions from noncontrolling
interests
Distributions to noncontrolling interests(5)
Balance as of December 31, 2016
$
$
22
—
—
—
—
—
—
—
—
—
22
—
—
—
—
—
—
—
—
—
22
$
$
$
4
—
—
—
—
$ 9,800
$
—
—
—
—
—
—
— (9,800)
—
—
—
4
—
—
—
—
—
—
—
—
—
4
—
—
—
$ — $
—
—
—
—
—
—
—
—
—
$ — $
$(2,556,469) $
(51,320)
—
(2,435)
—
(15,250)
—
—
—
$(2,625,474) $
(51,320)
—
—
95,306
—
—
—
—
—
85
—
—
—
—
(5)
1
—
—
—
81
—
—
1
—
$3,744,621
—
4,961
—
—
(70,411)
15,238
(5,079)
—
—
$3,689,330
—
2,031
9,595
—
—
(10)
—
(98,419)
(365)
—
—
—
—
—
72
63
(971) $
51,256
$ 1,248,348
—
—
—
—
—
—
—
—
—
—
(266)
—
—
—
—
(51,320)
4,961
(2,701)
(3,880)
(70,416)
(9,811)
(5,079)
205
205
(8,977)
(8,977)
(4,851) $
42,218
$ 1,101,330
—
—
—
—
633
—
—
—
—
—
—
—
(51,320)
2,031
9,596
10,927
106,233
—
—
—
790
633
(98,429)
(365)
790
(10,815)
(10,815)
$3,602,172
$(2,581,488) $
(4,218) $
43,120
$ 1,059,684
Table of Contents
iStar Inc.
Consolidated Statements of Changes in Equity
For the Years Ended December 31, 2016 and 2015
(In thousands)
iStar Inc. Shareholders' Equity
Preferred
Stock(1)
Preferred
Stock
Series J(1)
HPU's(2)
Common
Stock at
Par
Additional
Paid-In
Capital
Retained
Earnings
(Deficit)
Accumulated
Other
Comprehensive
Income (Loss)
Noncontrolling
Interests
Total
Equity
Balance as of December 31, 2016
Dividends declared—preferred
$
Issuance of stock/restricted stock unit
amortization, net
Net income for the period(3)
Change in accumulated other comprehensive
income (loss)
Repurchase of stock
Issuance of senior unsecured convertible notes
(refer to Note 10)
Dividends declared and payable — Series E
and Series F Preferred Stock
$
22
—
—
—
—
—
—
—
Redemption of Series E and F Preferred Stock
(10)
Change in additional paid in capital
attributable to redeemable noncontrolling
interest(6)
Contributions from noncontrolling interests
Distributions to noncontrolling interests
Balance as of December 31, 2017
$
—
—
—
12
$
4
—
—
—
—
—
—
—
—
—
—
—
4
$ — $
—
—
—
—
—
—
—
—
—
—
—
$ — $
72
—
—
—
—
(4)
—
—
—
—
—
—
68
$3,602,172
—
$(2,581,488) $
(46,614)
(4,218) $
—
43,120
—
$ 1,059,684
(46,614)
2,522
—
—
175,682
—
(45,924)
25,869
—
—
—
—
(223,676)
(1,830)
(16,314)
—
—
1,736
—
—
—
—
—
5,853
2,522
181,535
—
—
—
—
—
1,736
(45,928)
25,869
(1,830)
(240,000)
(8,298)
—
—
$3,352,665
—
—
—
$(2,470,564) $
—
—
—
(2,482) $
—
12
(14,439)
34,546
(8,298)
12
(14,439)
$ 914,249
_______________________________________________________________________________
(1)
(2)
(3)
(4)
(5)
(6)
Refer to Note 13 for details on the Company's Preferred Stock.
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, 2017, 2016 and 2015 net income (loss) shown above excludes $(1,327), $(6,051) and $(3,456) of net loss attributable to redeemable noncontrolling interests.
Includes a $6.4 million payment to acquire a noncontrolling interest (refer to Note 4).
Includes payments of $10.8 million to acquire a noncontrolling interest (refer to Note 5).
Represents the amount paid in excess of its carrying value to acquire a redeemable noncontrolling interest (refer to Note 4).
The accompanying notes are an integral part of the consolidated financial statements.
64
Table of Contents
iStar Inc.
Consolidated Statements of Cash Flows
(In thousands)
Cash flows from operating activities:
Net income (loss)
Adjustments to reconcile net income (loss) to cash flows from operating activities:
(Recovery of) provision for loan losses
Impairment of assets
Depreciation and amortization
Non-cash expense for stock-based compensation
Amortization of discounts/premiums and deferred financing costs on debt obligations, net
Amortization of discounts/premiums on loans, net
Deferred interest on loans, net
Gain from discontinued operations
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
Loss on early extinguishment of debt, net
Debt discount 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 provided by (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 and acquisition of interest in other investments
Changes in restricted cash held in connection with investing activities
Other investing activities, net
Cash flows provided by investing activities
Cash flows from financing activities:
Borrowings from debt obligations and convertible notes
Repayments and repurchases of debt obligations
Proceeds from loan participations payable
Preferred dividends paid
Repurchase of stock
Redemption of HPUs
Redemption of Series E and F preferred stock
Payments for deferred financing costs
Payments for withholding taxes upon vesting of stock-based compensation
Distributions to and redemption of noncontrolling interests
Other financing activities, net
Cash flows provided by (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:
Cash paid during the period for interest, net of amount capitalized
Supplemental disclosure of non-cash investing and financing activity:
Fundings and repayments of loan receivables and loan participations, net
Developer fee payable
Acquisitions of real estate and land and development assets through deed-in-lieu
Contributions of real estate and land and development assets to equity method investments, net
Accounts payable for capital expenditures on land and development assets
Accounts payable for capital expenditures on real estate assets
Conversion of senior unsecured convertible notes into common stock
Redemption of HPUs in exchange for common stock
Receivable from sales of real estate and land parcels
For the Years Ended December 31,
2016
2015
2017
$
180,208
$
100,182
$
(6,157)
(5,828)
32,379
49,934
18,812
13,857
(13,323)
10,133
(123,418)
(13,015)
42,059
(6,830)
(92,557)
(15,963)
3,065
(6,647)
14,429
1,424
(15,806)
7,299
80,212
(522,269)
(37,067)
(121,400)
(6,600)
615,620
—
314,013
194,090
—
49,672
(224,219)
6,414
1,231
269,485
2,288,654
(1,915,052)
—
(48,444)
(45,928)
—
(240,000)
(32,419)
(724)
(26,213)
(599)
(20,725)
(28)
328,944
328,744
657,688
179,208
(57,514)
—
—
—
3,775
2,709
—
—
4,853
$
$
$
(12,514)
14,484
54,329
10,889
16,810
(14,873)
22,396
—
(77,349)
48,732
(9,921)
(105,296)
(26,333)
1,619
(5,381)
6,897
3,634
(6,397)
(453)
21,455
(410,975)
(69,810)
(103,806)
(38,433)
504,844
—
435,560
94,424
43,936
92,482
(58,197)
1,515
(24,997)
466,543
716,001
(1,437,557)
22,844
(51,320)
(99,335)
—
—
(9,980)
(1,451)
(10,771)
1,207
(870,362)
7
(382,357)
711,101
328,744
199,667
(15,594)
9,478
40,583
8,828
3,674
—
9,596
—
7,509
$
$
$
$
$
36,567
10,524
65,247
12,013
17,352
(11,606)
(34,458)
—
(32,153)
29,999
(7,950)
(93,816)
(32,834)
281
(578)
5,889
(2,068)
2,631
(17,112)
(58,229)
(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)
(1,718)
(8,977)
1,663
112,763
478
239,040
472,061
711,101
207,972
14,075
7,435
13,424
21,096
7,143
8,107
—
15,240
22,695
The accompanying notes are an integral part of the consolidated financial statements.
65
Table of Contents
iStar Inc.
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 projects as part of its fully-integrated investment platform. The Company also provides management services for its ground
lease and net lease equity method investments (refer to Note 7). 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, land and development, net lease
and operating properties (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.
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 consolidated financial statements and the related notes to
conform to the current period presentation.
Principles of Consolidation—The consolidated financial statements 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 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," "Interest 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, 2017, the Company consolidates VIEs for which it is considered the primary
beneficiary. As of December 31, 2017, the total assets of these consolidated VIEs were $297.6 million and total liabilities were
$38.6 million. The classifications of these assets are primarily within "Land and development, net" and "Real estate, net" 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 did not have any unfunded commitments related to
consolidated VIEs as of December 31, 2017.
Unconsolidated VIEs—As of December 31, 2017, 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 financial statements. As of
December 31, 2017, the Company's maximum exposure to loss from these investments does not exceed the sum of the $82.5
million carrying value of the investments, which are classified in "Other investments" and "Loans receivable and other lending
investments, net" on the Company's consolidated balance sheets, and $34.9 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
depreciation 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 specifically 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
66
Table of Contents
Notes to Consolidated Financial Statements (Continued)
iStar Inc.
or other methods as appropriate during construction. The Company’s policy for interest capitalization on qualifying real estate
assets is to use the average amount of accumulated expenditures during the period the asset is being prepared for its intended use,
which is typically when physical construction commences, and a capitalization rate which is derived from specific borrowings on
the qualifying asset or the Company’s corporate borrowing rate in the absence of specific borrowings. 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 measures identifiable assets acquired, liabilities assumed and any noncontrolling interest in the acquiree
based on their relative fair values. For business combinations, 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, consisting 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 and in-place leases which are each recorded at their estimated 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 estimated fair values and included in “Accounts payable, accrued expenses
and other liabilities” on the Company's consolidated balance sheets. In-place leases 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 may also engage in sale/leaseback transactions and execute leases with the
occupant simultaneously with the purchase of the asset. These transactions are accounted for as asset acquisitions.
Impairments—The Company reviews real estate assets 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 value of a long-lived asset held for use and land and development assets are 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 and land and development
assets are 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 disposed of or classified as held for sale 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.
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 classified 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 development assets and gains or losses on the sale of real estate assets, including
residential property, are recognized in accordance with Accounting Standards Codification ("ASC") 360-20, Real Estate Sales.
67
Table of Contents
Notes to Consolidated Financial Statements (Continued)
iStar Inc.
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 real estate 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 securities classified as held-to-maturity are reported at their
outstanding unpaid principal balance, and include unamortized acquisition premiums or discounts 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 historical 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 statements of operations, and the remainder will be recorded in "Accumulated other comprehensive
income (loss)" on the Company's consolidated balance 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, net," "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 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 unconsolidated subsidiary, the Company’s investment in the subsidiary
is recorded at the Company’s cost basis in the assets that were contributed to the unconsolidated 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 subsidiary,
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
68
Table of Contents
Notes to Consolidated Financial Statements (Continued)
iStar Inc.
based on a comparison of the carrying amount of the property 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 assessment 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.
Deferred expenses and other assets—Deferred expenses and other assets include certain non-tenant receivables, leasing
costs, lease incentives and financing fees associated with revolving-debt arrangements. Financing fees associated with other debt
obligations are recorded as a reduction of the carrying value of "Debt obligations, net" and "Loan participations payable, net" on
the Company's consolidated balance sheets. Lease incentives and leasing costs that include brokerage, legal and other costs 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
statements 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, 2017, 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 liabilities 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 maintain 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.
69
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Notes to Consolidated Financial Statements (Continued)
iStar Inc.
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 analyses 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, net" on the Company's consolidated balance 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 respective 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 certain 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.
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 evaluation of the credit risks associated with these receivables. As of December 31, 2017 and 2016, the
allowance for doubtful accounts related to real estate tenant receivables was $1.3 million and the allowance for doubtful accounts
related to deferred operating lease income was $1.3 million.
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 discounts. 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
unamortized 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 receipts reduce a loan's carrying value. Non-accrual loans
are returned to accrual status when a loan has become contractually current and management 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 ultimately collectible, based on the underlying collateral and operations of the borrower.
Prepayment penalties or yield maintenance payments from borrowers 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 interest income only upon receipt
of cash.
Other income: Other income includes revenues from hotel operations, 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, yield maintenance payments, lease
termination fees and other ancillary income. During the year ended December 31, 2017, the Company recorded $123.4 million of
interest income and real estate tax reimbursements resulting from the settlement of litigation involving a dispute over the purchase
and sale of land (refer to Note11).
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 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.
70
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Notes to Consolidated Financial Statements (Continued)
iStar Inc.
Reserve for loan losses—The reserve for loan losses reflects management'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 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 the
Company works toward a settlement 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 underlying 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 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. 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 judgments about their credit quality based
on all known and relevant internal and external factors that may affect collectability. The Company considers, 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 segmented 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. 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 probable 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 difference between the reacquisition price of debt and the
net carrying amount of extinguished debt currently in earnings. Such amounts may include prepayment 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 interest rate risk exposure and foreign
exchange contracts to manage our risk to changes in foreign currencies.
71
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Notes to Consolidated Financial Statements (Continued)
iStar Inc.
The Company recognizes derivatives as either assets or liabilities on the Company's consolidated balance sheets at fair value.
If certain conditions 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 effective portion of changes in the fair value of the derivatives are
reported in Accumulated Other Comprehensive Income as part of the cumulative translation 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 economic 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. Compensation cost for market-based awards is determined using a Monte Carlo
model to simulate 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-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/service period
and recorded in "General and administrative" in the Company's consolidated statements of operations.
On January 1, 2017, the Company adopted Accounting Standards Update ("ASU") 2016-09, Compensation—Stock
Compensation: Improvements to Employee Share-Based Payment Accounting ("ASU 2016-09"), which was issued to simplify
several aspects of the accounting for share-based payment transactions, including income tax, classification of awards as either
equity or liabilities and classification on the statement of cash flows. The adoption of ASU 2016-09 did not have a material impact
on the Company's consolidated financial statements.
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 and subjects net income from these assets to corporate level tax.
The carrying value of assets with foreclosure elections as of December 31, 2017 is $139.7 million. The Tax Cuts and Jobs Act
reduced the corporate tax rate to 21% from 35% beginning in 2018 and net income from foreclosure property is subject to the 21%
tax rate beginning in 2018.
As of December 31, 2016, the Company had $948.8 million of REIT net operating loss ("NOL") carryforwards at the corporate
REIT level, which can generally be used to offset both ordinary taxable income and capital gain net income in future years. The
NOL carryforwards will expire beginning in 2029 and through 2036 if unused. The amount of NOL carryforwards as of
December 31, 2017 will be subject to finalization of the Company's 2017 tax return. The Tax Cuts and Jobs Act reduced the
deduction for net operating losses to 80% of the Company’s taxable income for losses incurred after December 31, 2017. Our net
operating loss carryforward for losses incurred in taxable years prior to 2018 remain fully deductible. The Company's tax years
from 2014 through 2016 remain subject to examination by major tax jurisdictions. During the year ended December 31, 2017, the
Company is expected to have REIT taxable income before the NOL deduction. 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 of
operations.
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 taxable 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
72
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Notes to Consolidated Financial Statements (Continued)
iStar Inc.
in equity affiliates. As of December 31, 2017, $759.6 million of the Company's assets were owned by TRS entities. The Company's
TRS entities are not consolidated with the REIT for federal income tax purposes and are taxed as corporations. For financial
reporting purposes, current and deferred taxes are provided for on the portion of earnings recognized by the Company with respect
to its interest in TRS entities.
The following represents the Company's TRS income tax benefit (expense) ($ in thousands):
Current tax benefit (expense)(1)(2)
Total income tax (expense) benefit
For the Years Ended December 31,
2017
2016
2015
$
$
531
531
$
$
9,751
9,751
$
$
(7,639)
(7,639)
_______________________________________________________________________________
(1)
For the year ended December 31, 2017, the Company recognized a tax benefit for alternative minimum tax credits generated from a carryback of NOLs to
2014 and 2015. For the year ended December 31, 2016, excludes a REIT income tax benefit of $0.4 million.
(2) Under the Tax Cuts and Jobs Act, the alternative minimum tax credit carryforward is a refundable tax credit over a four year period beginning in 2018 and
ending in 2021 upon which the full amount of the credit will be allowed.
During the year ended December 31, 2017, the Company's TRS entities generated a taxable loss of $33.1 million for which
the Company recognized no current tax benefit. The Company’s TRS NOL will be carried forward and the Company’s TRS
recorded a full valuation allowance against the related deferred tax asset. During the year ended December 31, 2016, the Company's
TRS entities generated a taxable loss of $49.4 million, resulting in a current tax benefit of $9.8 million, including a benefit for a
return to provision adjustment in the amount of $2.8 million. The 2016 benefit was limited to the amount the Company’s TRS
expected to receive after it filed an NOL carryback claim. The remaining balance of its NOL was carried forward and the Company’s
TRS recorded a full valuation allowance against the related deferred tax asset. During the year ended December 31, 2015, the
Company's TRS entities generated taxable income of $17.0 million, which was partially offset by the utilization of NOL
carryforwards, resulting in current tax expense of $7.6 million.
Total cash paid for taxes for the years ended December 31, 2017, 2016 and 2015 was $6.0 million, $0.2 million and $8.4
million, respectively. The taxes paid in 2017 were primarily alternative minimum taxes at the REIT which the Company expects
to be refunded over the next four years.
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 for income tax purposes, as well as operating loss and tax credit carryforwards.
The Company applied the corporate tax rate enacted December 22, 2017 under the Tax Cuts and Jobs Act effective for years
beginning after 2017 to value its deferred tax assets and liabilities and is in the process of determining whether any of deferred
tax assets or liabilities would not be realized because of the change in tax law as such information becomes available. The Company
evaluates whether its deferred tax assets are realizable 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 whether its deferred tax assets are realizable, the Company considers, among other matters, estimates of expected future
taxable 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 analysis is inherently 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 activities within the TRS entities, it was determined that full valuation allowances
were required on the net deferred tax assets as of December 31, 2017 and 2016, respectively. Changes in estimates of our valuation
allowance, if any, are included in "Income tax (expense) benefit" in the consolidated statements of operations. The valuation
allowance was reduced to reflect the change in value of our net deferred tax assets that reflects a reduced rate of tax under the Tax
Cuts and Jobs Act.
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Notes to Consolidated Financial Statements (Continued)
iStar Inc.
Deferred tax assets and liabilities of the Company's TRS entities were as follows ($ in thousands):
Deferred tax assets(1)(2)
Valuation allowance
Net deferred tax assets (liabilities)
As of December 31,
2017
2016
$
$
$
63,258
(63,258)
— $
66,498
(66,498)
—
_______________________________________________________________________________
(1) Deferred tax assets as of December 31, 2017 include timing differences related primarily to asset basis of $26.1 million, deferred expenses and other items
of $13.6 million, NOL carryforwards of $21.3 million and other credits of $2.3 million. Deferred tax assets as of December 31, 2016 include timing
differences related primarily to asset basis of $29.7 million, deferred expenses and other items of $21.2 million and NOL carryforwards of $15.6 million.
The Company has not yet finalized whether any of its gross deferred tax assets are no longer realizable because of a change in tax law and will adjust its
provisional gross deferred tax balances once sufficient information becomes available to make such a determination. Because the Company records a full
valuation allowance, the Company does not expect to record a net change in estimate in “Income tax (expense) benefit” in its consolidated statement of
operations during the period in which such determination becomes final.
(2) Gross deferred tax assets as of December 31, 2017 were valued at the enacted corporate tax rate during the period in which such deferred tax assets are
expected to be realized. The Tax Cuts and Jobs Act reduced the federal corporate tax rate to 21% from35% for taxable years beginning after December 31,
2017. The Company’s TRS’s applied its reduced effective tax rate to compute its gross deferred tax assets before valuation allowance.
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 dividends and earnings of the Company
when, and if, the Company declares dividends on its common stock. Vested HPU shares were entitled to dividends of the Company
when dividends were declared. Basic earnings per 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 earnings 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 August 2017, the FASB issued Accounting Standards Update ("ASU") 2017-12,
Derivatives and Hedging - Targeted Improvements to Accounting for Hedging Activities ("ASU 2017-12"), to better align an
entity’s risk management activities and financial reporting for hedging relationships through changes to both the designation and
measurement guidance for qualifying hedging relationships and the presentation of hedge results. ASU 2017-12 expands and
refines hedge accounting for both nonfinancial and financial risk components and aligns the recognition and presentation of the
effects of the hedging instrument and the hedged item in the financial statements. ASU 2017-12 is effective for interim and annual
reporting periods beginning after December 15, 2018. Early adoption is permitted. Management does not believe the guidance
will have a material impact on the Company's consolidated financial statements.
In February 2017, the FASB issued ASU 2017-05, Other Income—Gains and Losses from the Derecognition of Nonfinancial
Assets ("ASU 2017-05"), to clarify the scope of Subtopic 610-20, Other Income—Gains and Losses from the Derecognition of
Nonfinancial Assets, and to add guidance for partial sales of nonfinancial assets. The amendments in ASU 2017-05 simplify GAAP
by eliminating several accounting differences between transactions involving assets and transactions involving businesses. The
amendments in ASU 2017-05 require an entity to initially measure a retained noncontrolling interest in a nonfinancial asset at fair
value consistent with how a retained noncontrolling interest in a business is measured. Also, if an entity transfers ownership interests
in a consolidated subsidiary that is within the scope of ASC 610-20 and continues to have a controlling financial interest in that
subsidiary, ASU 2017-05 requires the entity to account for the transaction as an equity transaction, which is consistent with how
changes in ownership interests in a consolidated subsidiary that is a business are recorded when a parent retains a controlling
financial interest in the business. ASU 2017-05 is effective for interim and annual reporting periods beginning after December 15,
2017. Early adoption is permitted beginning January 1, 2017. The Company will adopt ASU 2017-05 using the modified
retrospective approach, which will require the Company to record a cumulative adjustment to retained earnings as of the beginning
of the period in the year of adoption of the new standard. The Company concluded that transactions in assets and businesses in
which the Company retains an ownership interest, such as the sale of a controlling interest in its Ground Lease business (refer to
Note 4), and other transactions in which it sold or contributed real estate to a venture in which it retained a noncontrolling interest
74
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Notes to Consolidated Financial Statements (Continued)
iStar Inc.
and recognized a partial gain, will be impacted by this guidance. As a result, under the modified retrospective approach, the
Company expects to record incremental gains to beginning retained earnings as of January 1, 2018 in its consolidated statements
of changes in equity, including an incremental gain of $55.5 million from the sale of its Ground Lease business, bringing the
Company's full gain on the sale of its Ground Lease business to approximately $178.9 million.
In January 2017, the FASB issued ASU 2017-01, Business Combinations: Clarifying the Definition of a Business ("ASU
2017-01"), to provide a more robust framework to use in determining when a set of assets and activities is a business. The
amendments provide more consistency in applying the guidance, reduce the costs of application, and make the definition of a
business more operable. The Company's real estate acquisitions have historically been accounted for as a business combination
or an asset acquisition. Under ASU 2017-01, certain transactions previously accounted for as business combinations under the
existing guidance would be accounted for as asset acquisitions under the new guidance. As a result, the Company expects more
transaction costs to be capitalized under real estate acquisitions and less transaction costs to be expensed under business
combinations as a result of the new guidance. ASU 2017-01 is effective for interim and annual reporting periods beginning after
December 15, 2017. Early application is permitted. Management is evaluating the impact of the guidance on the Company's
consolidated financial statements.
In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows: Restricted Cash ("ASU 2016-18") which
requires that restricted cash be included with cash and cash equivalents when reconciling beginning and ending cash and cash
equivalents on the statement of cash flows. In addition, ASU 2016-18 requires disclosure of what is included in restricted cash.
ASU 2016-18 is effective for interim and annual reporting periods beginning after December 15, 2017. Early adoption is permitted.
Management has determined the guidance will not have a material impact on the Company's consolidated financial statements.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows: Classification of Certain Cash Receipts and Cash
Payments ("ASU 2016-15") which was issued to reduce diversity in practice in how certain cash receipts and cash payments,
including debt prepayment or debt extinguishment costs, distributions from equity method investees, and other separately
identifiable cash flows, are presented and classified in the statement of cash flows. ASU 2016-15 is effective for interim and annual
reporting periods beginning after December 15, 2017. Early adoption is permitted. Management has determined the guidance will
not have a material impact on the Company's consolidated financial statements.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses: Measurement of Credit Losses on
Financial Instruments ("ASU 2016-13") which was issued to provide financial statement users with more decision-useful
information about the expected credit losses on financial instruments held by a reporting entity. This amendment replaces the
incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires
consideration of a broader range of reasonable and supportable information to determine credit loss estimates. ASU 2016-13 is
effective for interim and annual reporting periods beginning after December 15, 2019. Early adoption is permitted for interim and
annual reporting periods beginning after December 15, 2018. Management does not believe the guidance will have a material
impact on the Company's consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, Leases ("ASU 2016-02"), which requires the recognition of lease assets
and lease liabilities by lessees for those leases classified as operating leases. For operating leases, a lessee will be required to do
the following: (i) recognize a right-of-use asset and a lease liability, initially measured at the present value of the lease payments,
in the statement of financial position; (ii) recognize a single lease cost, calculated so that the cost of the lease is allocated over the
lease term on a generally straight-line basis and (iii) classify all cash payments within operating activities in the statement of cash
flows. For operating lease arrangements for which the Company is the lessee, primarily the lease of office space, the Company
expects the impact of ASU 2016-02 to be the recognition of a right-of-use asset and lease liability on its consolidated balance
sheets. The accounting applied by the Company as a lessor will be largely unchanged from that applied under previous GAAP.
However, in certain instances, a new long-term lease of land subsequent to adoption could be classified as a sales-type lease, which
could result in the Company derecognizing the underlying asset from its books and recording a profit or loss on sale and the net
investment in the lease. ASU 2016-02 is effective for interim and annual reporting periods beginning after December 15, 2018.
Early adoption is permitted. Management is evaluating the impact of the guidance on the Company's consolidated financial
statements.
In January 2016, the FASB issued ASU 2016-01, Financial Instruments - Overall: Recognition and Measurement of Financial
Assets and Financial Liabilities ("ASU 2016-01"), which addresses certain aspects of recognition, measurement, presentation and
disclosure of financial instruments. ASU 2016-01 is effective for interim and annual reporting periods beginning after December
75
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Notes to Consolidated Financial Statements (Continued)
iStar Inc.
15, 2017. Early adoption is not permitted. Management has concluded that ASU 2016-01 will not have a material impact on
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. Although most of the Company's revenue
is operating lease income generated from lease contracts and interest income generated from financial instruments, certain other
of the Company's revenue streams will be impacted by 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 effective for interim and annual reporting periods beginning after December 15, 2017. Early adoption was permitted
beginning January 1, 2017. The Company will adopt ASU 2014-09 using the modified retrospective approach on January 1, 2018.
Based on the Company's assessment of the impact of the adoption of ASU 2014-09, it does not expect the adoption to have a
material impact on its consolidated financial statements.
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Note 4—Real Estate
Notes to Consolidated Financial Statements (Continued)
iStar Inc.
The Company's real estate assets were comprised of the following ($ in thousands):
As of December 31, 2017
Land, at cost
Buildings and improvements, at cost
Less: accumulated depreciation
Real estate, net
Real estate available and held for sale (2)
Total real estate
As of December 31, 2016
Land, at cost
Buildings and improvements, at cost
Less: accumulated depreciation
Real estate, net
Real estate available and held for sale (2)
Total real estate
Net Lease(1)
Operating
Properties
Total
$
219,092
$
203,278
$
422,370
$
$
888,959
(292,268)
815,783
—
815,783
231,506
987,050
(307,444)
911,112
155,051
$
$
318,107
(55,137)
466,248
68,588
534,836
211,054
311,283
(46,175)
476,162
82,480
$
$
1,207,066
(347,405)
1,282,031
68,588
1,350,619
442,560
1,298,333
(353,619)
1,387,274
237,531
$
1,066,163
$
558,642
$
1,624,805
_______________________________________________________________________________
(1)
In 2014, the Company partnered with a sovereign wealth fund to form a venture to acquire and develop net lease assets (the "Net Lease Venture") and gave
a right of first refusal to the Net Lease Venture on all new net lease investments (refer to Note 7 for more information on the Net Lease Venture). The
Company is responsible for sourcing new opportunities and managing the Net Lease Venture and its assets in exchange for a promote and management fee.
(2) As of December 31, 2017 and 2016 the Company had $48.5 million and $82.5 million, respectively, of residential properties available for sale in its operating
properties portfolio. As of December 31, 2016, net lease includes the Company's ground lease ("Ground Lease") assets that were reclassified to "Real estate
available and held for sale" (refer to "Disposition of Ground Lease Business" below). As of December 31, 2016, the carrying value of the Company's Ground
Lease assets were previously classified as $104.5 million in "Real estate, net," $37.5 million in "Deferred expenses and other assets, net," $8.2 million in
"Deferred operating lease income receivable, net" and $3.5 million in "Accrued interest and operating lease income receivable, net" on the Company's
consolidated balance sheet.
Real Estate Available and Held for Sale—The following table presents the carrying value of properties transferred to held
for sale, by segment ($ in millions)(1):
Property Type
Operating Properties(2)
Net Lease
Total
Year Ended December 31,
2017
2016
2015
$
$
20.1
0.9
21.0
$
$
16.1
1.8
17.9
$
$
2.9
8.2
11.1
_______________________________________________________________________________
(1)
(2) During the year ended December 31, 2015, the Company transferred a commercial operating property with a carrying value of $2.9 million to held for
Properties were transferred to held for sale due to executed contracts with third parties or changes in business strategy.
investment due to a change in business strategy.
During the year ended December 31, 2016, the Company also acquired two residential condominium units for $1.8 million
that were held for sale and were sold as of December 31, 2017.
Acquisitions—During the year ended December 31, 2017, the Company acquired one net lease asset for $6.6 million. In
addition, in the third quarter 2017, in conjunction with the modification of two master leases, the Company exchanged real property
with the tenant. The fair value of the property exchanged exceeded the Company's cost basis by approximately $1.5 million which
will be deferred and amortized to "Operating lease income" in the Company's consolidated statements of operations over the
remaining master lease terms.
77
Table of Contents
Notes to Consolidated Financial Statements (Continued)
iStar Inc.
During the year ended December 31, 2016, the Company acquired one net lease asset for $32.7 million. During the same
period, the Company also acquired land for $3.9 million and simultaneously entered into a 99 year Ground Lease with the seller.
This asset was one of the 12 properties comprising the Company's Ground Lease business that was disposed of in April 2017 (see
"Disposition of Ground Lease Business" below).
During the year ended December 31, 2015, the Company acquired, via deed-in-lieu, title to a residential operating 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.
Disposition of Ground Lease Business—In April 2017, institutional investors acquired a controlling interest in the
Company's Ground Lease business through the merger of a Company subsidiary and related transactions (the "Acquisition
Transactions"). The Company's Ground Lease business was a component of the Company's net lease segment and consisted of 12
properties subject to long term net leases including seven Ground Leases and one master lease (covering five properties). The
acquiring entity was a newly formed unconsolidated entity named Safety, Income & Growth Inc. ("SAFE"). The carrying value
of the Company's Ground Lease assets was approximately $161.1 million. Shortly before the Acquisition Transactions, the Company
completed the $227.0 million 2017 Secured Financing on its Ground Lease assets (refer to Note 10). The Company received all
of the proceeds of the 2017 Secured Financing. The Company received an additional $113.0 million of proceeds in the Acquisition
Transactions, including $55.5 million that the Company contributed to SAFE in its initial capitalization. As a result of the Acquisition
Transactions, the Company deconsolidated the 12 properties and the associated 2017 Secured Financing. The Company accounts
for its investment in SAFE as an equity method investment (refer to Note 7). The Company accounted for this transaction as an
in substance sale of real estate and recognized a gain of $123.4 million, reflecting the aggregate gain less the fair value of the
Company's retained interest in SAFE (refer to Note 2 - Summary of Significant Accounting Policies). The carrying value of the
12 properties is classified in "Real estate available and held for sale" on the Company's consolidated balance sheet as of December
31, 2016 and the gain was recorded in "Gain from discontinued operations" in the Company's consolidated statements of operations.
Discontinued Operations—The transactions described above involving the Company's Ground Lease business qualified
for discontinued operations and the following table summarizes income from discontinued operations for the years ended December
31, 2017, 2016 and 2015 ($ in thousands)(1):
Revenues
Expenses
Income from discontinued operations
Year Ended December 31,
2017
2016
2015
$
$
6,430
(1,491)
4,939
$
$
21,839
(3,569)
18,270
$
$
18,520
(3,443)
15,077
_______________________________________________________________________________
(1)
Revenues primarily consisted of operating lease income and expenses primarily consisted of depreciation and amortization and real estate expense. For
the year ended December 31, 2017, revenues also includes income from sales of real estate.
The following table presents cash flows provided by operating activities and cash flows used in investing activities from
discontinued operations for the years ended December 31, 2017, 2016 and 2015 ($ in thousands).
Cash flows provided by operating activities
$
Cash flows used in investing activities
5,702
$
(534)
$
16,662
(7,972)
14,446
—
Year Ended December 31,
2017
2016
2015
78
Table of Contents
Notes to Consolidated Financial Statements (Continued)
iStar Inc.
Other Dispositions—The following table presents the proceeds and income recognized for properties sold, by property type
($ in millions)(1):
Year Ended December 31,
2017(1)
2016
2015(2)
Operating Properties
Proceeds
$
41.3
$
326.9
$
Income from sales of real estate
4.5
75.4
Net Lease
Proceeds
$
175.4
$
117.2
$
Income from sales of real estate
87.5
21.1
Total
Proceeds
$
216.7
$
444.1
$
Income from sales of real estate
92.0
96.5
294.9
53.7
100.8
40.1
395.7
93.8
_______________________________________________________________________________
(1) During the year ended December 31, 2017, the Company sold a net lease property and recognized a gain on sale of $62.5 million. Prior to the sale, the
Company acquired the noncontrolling interest with a carrying value of $3.5 million for $12.0 million.
(2) 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 to a third party, 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 with
a carrying value of $126.3 million for net proceeds of $93.5 million and simultaneously entered into a ground lease with the buyer with an initial term of
99 years. The Company sold the leasehold interest at below fair value to incentivize the buyer to enter into an above market ground lease. As a result, the
Company recorded no gain or loss on the sale and recorded a lease incentive asset of $32.8 million, which is included in "Real estate available and held for
sale" on the Company's consolidated balance sheets. In December 2015, the Company acquired the noncontrolling interest in the entity for $6.4 million.
Impairments—During the years ended December 31, 2017, 2016 and 2015, the Company recorded impairments on real
estate assets totaling $11.9 million, $10.7 million and $5.9 million, respectively. The impairments recorded in 2017 were primarily
the result of shifting demand in the local condominium markets, changes in our exit strategy on other real estate assets and an
impairment recorded in connection with the sale of an outparcel located at a commercial operating property. The impairments
recorded in 2016 resulted from unfavorable local market conditions on residential operating properties and impairments upon the
execution of sales contracts on net lease assets. The impairments recorded in 2015 resulted from a change in business strategy for
two commercial operating properties and unfavorable local market conditions for one residential property.
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 reimbursements were $21.9 million, $23.6
million and $26.6 million for the years ended December 31, 2017, 2016 and 2015, respectively. These amounts are included in
"Operating lease income" in the Company's consolidated statements of operations.
Allowance for Doubtful Accounts—As of December 31, 2017 and 2016, the allowance for doubtful accounts related to
real estate tenant receivables was $1.3 million and the allowance for doubtful accounts related to deferred operating lease income
was $1.3 million. These amounts are included in "Accrued interest and operating lease income receivable, net" and "Deferred
operating lease income receivable, net," respectively, on the Company's consolidated balance sheets.
79
Table of Contents
Notes to Consolidated Financial Statements (Continued)
iStar Inc.
Future Minimum Operating Lease Payments—Future minimum operating lease payments to be collected under non-
cancelable leases, excluding customer reimbursements of expenses, in effect as of December 31, 2017, are as follows ($ in
thousands):
Year
2018
2019
2020
2021
2022
$
Net Lease Assets
101,135
101,448
100,894
101,288
100,040
Operating Properties
37,009
$
33,748
31,952
30,075
20,187
Note 5—Land and Development
The Company's land and development assets were comprised of the following ($ in thousands):
Land and land development, at cost
Less: accumulated depreciation
Total land and development, net
As of December 31,
2017
2016
$
$
868,692
(8,381)
860,311
$
$
952,051
(6,486)
945,565
Acquisitions—During the year ended December 31, 2016, the Company acquired, via deed-in-lieu, title to two land assets
which had a total fair value of $40.6 million and previously served as collateral for loans receivable held by the Company. No gain
or loss was recorded in connection with these transactions.
Dispositions—During the years ended December 31, 2017, 2016 and 2015, the Company sold residential lots and parcels
and recognized land development revenue of $196.9 million, $88.3 million and $100.2 million, respectively, from its land and
development portfolio. During the years ended December 31, 2017, 2016 and 2015, the Company recognized land development
cost of sales of $180.9 million, $62.0 million and $67.4 million, respectively, from its land and development portfolio.
In connection with the resolution of litigation involving a dispute over the purchase and sale of approximately 1,250 acres
of land in Prince George’s County, Maryland ("Bevard"), during the year ended December 31, 2017, the Company recognized
$114.0 million of land development revenue and $106.3 million of land development cost of sales (refer to Note 11). In 2016, the
Company acquired an additional 10.7% interest in Bevard for $10.8 million and owned 95.7% of Bevard at the time of resolution.
During the year ended December 31, 2016, the Company sold a land and development asset 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 of $8.8 million,
reflecting the Company's share of the interest sold to a third party, which was recorded as "Income from sales of real estate" in the
Company's consolidated statement of operations.
In April 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 immediate payment 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 as unearned revenue in "Accounts payable, accrued expenses and other liabilities" on
the Company's consolidated balance sheets (refer to Note 8).
Impairments—During the year ended December 31, 2017, the Company recorded impairments on land and development
assets of $20.5 million resulting from a decrease in expected cash flows on one asset and a change in exit strategy on another asset.
During the years ended December 31, 2016 and 2015, the Company recorded impairments on land and development assets of $3.8
million and $4.6 million, respectively.
80
Table of Contents
Notes to Consolidated Financial Statements (Continued)
iStar Inc.
Redeemable Noncontrolling Interest—The Company has a majority interest in a strategic venture that provides the third
party minority partner an option to redeem their interest at fair value. The Company has reflected the partner's noncontrolling
interest in this venture as a component of redeemable noncontrolling interest within its consolidated balance sheets. Changes in
fair value are being accreted over the term from the date of issuance of the redemption option to the earliest redemption date using
the interest method. As of December 31, 2017 and 2016, this interest had a carrying value of zero and $1.3 million, respectively.
As of December 31, 2017 and 2016, this interest did not have a redemption value.
Note 6—Loans Receivable and Other Lending Investments, net
The following is a summary of the Company's loans receivable and other lending investments by class ($ in thousands):
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
As of December 31,
2017
2016
$
791,152
$
488,921
9,495
1,289,568
(78,489)
1,211,079
89,576
940,738
490,389
24,941
1,456,068
(85,545)
1,370,523
79,916
1,450,439
Total loans receivable and other lending investments, net
$
1,300,655
$
Reserve for Loan Losses—Changes in the Company's reserve for loan losses were as follows ($ in thousands):
Reserve for loan losses at beginning of period
(Recovery of) provision for loan losses(1)
Charge-offs
Reserve for loan losses at end of period
For the Years Ended December 31,
2017
2016
2015
$
$
85,545
(5,828)
(1,228)
78,489
$
$
108,165
(12,514)
(10,106)
85,545
$
$
98,490
36,567
(26,892)
108,165
______________________________________________________________________________
(1)
For the years ended December 31, 2016 and 2015, the provision for loan losses includes recoveries of previously recorded asset-specific loan loss reserves
of $13.7 million and $0.6 million, respectively.
81
Table of Contents
Notes to Consolidated Financial Statements (Continued)
iStar Inc.
The Company's recorded investment in loans (comprised of a loan's carrying value plus accrued interest) and the associated
reserve for loan losses were as follows ($ in thousands):
As of December 31, 2017
Loans
Less: Reserve for loan losses
Total(3)
As of December 31, 2016
Loans
Less: Reserve for loan losses
Total(3)
Individually
Evaluated for
Impairment(1)
Collectively
Evaluated for
Impairment(2)
$
$
$
$
237,877
(60,989)
176,888
253,941
(62,245)
191,696
$
$
$
$
1,056,944
(17,500)
1,039,444
1,209,062
(23,300)
1,185,762
$
$
$
$
Total
1,294,821
(78,489)
1,216,332
1,463,003
(85,545)
1,377,458
_______________________________________________________________________________
(1)
The carrying value of these loans include unamortized discounts, premiums, deferred fees and costs totaling net discounts of $0.7 million and $0.4 million as of
December 31, 2017 and 2016, respectively. The Company's loans individually evaluated for impairment primarily represent loans on non-accrual status and
therefore, the unamortized amounts associated with these loans are not currently being amortized into income. During the year ended December 31, 2016, the
Company transferred a loan with a gross carrying value of $157.2 million to non-performing status due to the initiation of bankruptcy proceedings related to the
collateral, which resulted in the release of $11.6 million of the general reserve. The Company performed a valuation and recorded a specific reserve of $12.5
million.
The carrying value of these loans include unamortized discounts, premiums, deferred fees and costs totaling net premiums of $6.2 million and $1.9 million as
of December 31, 2017 and 2016, respectively.
The Company's recorded investment in loans as of December 31, 2017 and 2016 includes accrued interest of $5.3 million and $6.9 million, respectively, which
are included in "Accrued interest and operating lease income receivable, net" on the Company's consolidated balance sheets. As of December 31, 2017 and 2016,
excludes $89.6 million and $79.9 million, respectively, of securities that are evaluated for impairment under ASC 320.
(2)
(3)
Credit Characteristics—As part of the Company's process for monitoring the credit quality of its loans, it performs a quarterly
loan portfolio assessment and assigns risk ratings to each of its performing loans. Risk ratings, which range from 1 (lower risk) to 5
(higher risk), are based on judgments which are inherently uncertain and there can be no assurance that actual performance will be
similar to current expectation.
82
Table of Contents
Notes to Consolidated Financial Statements (Continued)
iStar Inc.
The Company's recorded investment in performing loans, presented by class and by credit quality, as indicated by risk rating,
was as follows ($ in thousands):
Senior mortgages
Corporate/Partnership loans
Subordinate mortgages
Total
As of December 31,
2017
2016
Performing
Loans
Weighted
Average
Risk Ratings
Performing
Loans
Weighted
Average
Risk Ratings
$
713,057
334,364
9,523
$
1,056,944
2.72
2.85
3.00
2.77
$
859,250
335,677
14,135
$
1,209,062
3.12
3.09
3.00
3.11
The Company's recorded investment in loans, aged by payment status and presented by class, were as follows ($ in thousands):
As of December 31, 2017
Senior mortgages
Corporate/Partnership loans
Subordinate mortgages
Total
As of December 31, 2016
Senior mortgages
Corporate/Partnership loans
Subordinate mortgages
Total
Current
Less Than
and Equal
to 90 Days
Greater
Than
90 Days(1)
Total
Past Due
719,057
$
— $
75,343
$
75,343
$
$
$
$
334,364
9,523
1,062,944
868,505
335,677
24,998
$
$
156,534
156,534
—
—
—
$
$
— $
231,877
— $
—
—
76,677
157,146
—
$
$
—
231,877
76,677
157,146
—
Total
794,400
490,898
9,523
1,294,821
945,182
492,823
24,998
$
1,229,180
$
— $
233,823
$
233,823
$
1,463,003
_______________________________________________________________________________
(1) As of December 31, 2017, the Company had four loans which were greater than 90 days delinquent and were in various stages of resolution, including legal
proceedings, environmental concerns and foreclosure-related proceedings, and ranged from 1.0 to 9.0 years outstanding. As of December 31, 2016, the Company
had four loans which were greater than 90 days delinquent and were in various stages of resolution, including legal proceedings, environmental concerns and
foreclosure-related proceedings, and ranged from 1.0 to 8.0 years outstanding.
83
Table of Contents
Notes to Consolidated Financial Statements (Continued)
iStar Inc.
Impaired Loans—The Company's recorded investment in impaired loans, presented by class, were as follows ($ in thousands)(1):
As of December 31, 2017
As of December 31, 2016
Recorded
Investment
Unpaid
Principal
Balance
Related
Allowance
Recorded
Investment
Unpaid
Principal
Balance
Related
Allowance
With no related allowance recorded:
$
Subordinate mortgages
Subtotal
With an allowance recorded:
Senior mortgages
Corporate/Partnership loans
Subtotal
Total:
Senior mortgages
Corporate/Partnership loans
Subordinate mortgages
$
$
$
$
— $
— $
— $
— $
— $
— $
10,862
10,862
$
$
$
81,343
156,534
237,877
81,343
156,534
—
$
$
$
81,431
145,849
227,280
81,431
145,849
—
(48,518) $
(12,471)
(60,989) $
85,933
157,146
243,079
(48,518) $
(12,471)
—
(60,989) $
85,933
157,146
10,862
$
$
$
$
$
$
$
$
$
$
10,846
10,846
85,780
146,783
232,563
85,780
146,783
10,846
—
—
(49,774)
(12,471)
(62,245)
(49,774)
(12,471)
—
Total
$
237,877
$
227,280
$
253,941
$
243,409
$
(62,245)
_______________________________________________________________________________
(1) All of the Company's non-accrual loans are considered impaired and included in the table above.
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
Subordinate mortgages
Subtotal
With an allowance recorded:
Senior mortgages
Corporate/Partnership loans
Subtotal
Total:
Senior mortgages
Corporate/Partnership loans
Subordinate mortgages
Total
For the Years Ended December 31,
2017
2016
2015
Average
Recorded
Investment
Interest
Income
Recognized
Average
Recorded
Investment
Interest
Income
Recognized
Average
Recorded
Investment
Interest
Income
Recognized
$
— $
— $
3,661
$
226
$
— $
6,582
6,582
1,127
1,127
6,799
10,460
82,749
156,756
239,505
82,749
156,756
6,582
—
—
—
—
—
1,127
118,921
66,101
185,022
122,582
66,101
6,799
—
226
—
—
—
226
—
—
—
—
129,135
24,252
153,387
129,135
24,252
—
$ 246,087
$
1,127
$ 195,482
$
226
$ 153,387
$
—
—
—
38
12
50
38
12
—
50
There was no interest income related to the resolution of non-performing loans recorded during the years ended December 31,
2017, 2016 and 2015.
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 restructured 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 $11.6 million to grant a discounted payoff option and a maturity extension of one year. The Company's recorded investment in these
loans was not impacted by the modifications.
84
Table of Contents
Notes to Consolidated Financial Statements (Continued)
iStar Inc.
Generally when granting concessions, the Company will seek to protect its position by requiring incremental pay downs, additional
collateral or guarantees and in some cases lookback features or equity kickers to offset concessions granted should conditions impacting
the loan improve. The Company's determination of credit losses is impacted by troubled debt restructurings whereby loans that have
gone through troubled debt restructurings are considered impaired, assessed for specific reserves, and are not included in the Company's
assessment of general loan loss reserves. Loans previously restructured under troubled debt restructurings that subsequently default
are reassessed to incorporate the Company's current assumptions on expected cash flows and additional provision expense is recorded
to the extent necessary. As of December 31, 2017, there were no unfunded commitments associated with modified loans considered
troubled debt restructurings.
Securities—Other lending investments—securities includes the following ($ in thousands):
Face Value
Amortized
Cost Basis
Net Unrealized
Gain
Estimated Fair
Value
Net Carrying
Value
As of December 31, 2017
Available-for-Sale Securities
Municipal debt securities
Held-to-Maturity Securities
Debt securities
Total
As of December 31, 2016
Available-for-Sale Securities
Municipal debt securities
Held-to-Maturity Securities
Debt securities
Total
$
$
$
$
21,230
$
21,230
$
1,612
$
22,842
$
22,842
66,618
66,734
1,581
68,315
87,848
$
87,964
$
3,193
$
91,157
$
66,734
89,576
21,240
$
21,240
$
426
$
21,666
$
21,666
58,454
58,250
2,753
61,003
79,694
$
79,490
$
3,179
$
82,669
$
58,250
79,916
As of December 31, 2017, the contractual maturities of the Company's securities were as follows ($ in thousands):
Held-to-Maturity Securities
Available-for-Sale Securities
Amortized
Cost Basis
Estimated Fair
Value
Amortized
Cost Basis
Estimated Fair
Value
Maturities
Within one year
$
48,468
$
49,451
$
After one year through 5 years
18,266
18,864
After 5 years through 10 years
After 10 years
—
—
—
—
— $
—
—
21,230
Total
$
66,734
$
68,315
$
21,230
$
—
—
—
22,842
22,842
85
Table of Contents
Note 7—Other Investments
Notes to Consolidated Financial Statements (Continued)
iStar Inc.
The Company's other investments and its proportionate share of earnings (losses) from equity method investments were as
follows ($ in thousands):
Carrying Value
Equity in Earnings (Losses)
As of December 31,
For the Years Ended December 31,
2017
2016
2017
2016
2015
Real estate equity investments
iStar Net Lease I LLC ("Net Lease Venture")
Safety, Income & Growth Inc. ("SAFE")(1)
Marina Palms, LLC ("Marina Palms")
Other real estate equity investments (2)
Subtotal
Other strategic investments (3)
$
121,139
$
92,669
$
4,534
$
3,567
$
5,221
83,868
2,555
100,061
307,623
13,618
—
35,185
53,202
181,056
33,350
551
2,621
3,899
11,605
1,410
—
22,053
41,822
67,442
9,907
—
23,626
(5,280)
23,567
8,586
Total
$
321,241
$
214,406
$
13,015
$
77,349
$
32,153
Equity in earnings is for the period from April 14, 2017 to December 31, 2017.
_______________________________________________________________________________
(1)
(2) During the year ended December 31, 2016, a majority-owned consolidated subsidiary of the Company sold its interest in a real estate equity method
investment for net proceeds of $39.8 million and recognized equity in earnings of $31.5 million, of which $10.1 million was attributable to the noncontrolling
interest. In addition, the Company received a distribution from one of its real estate equity method investments and recognized equity in earnings during
the year ended December 31, 2016 of $11.6 million.
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, 2016 and 2015, the Company recognized $4.3 million, $2.2 million, respectively, of carried interest
income.
(3)
Net Lease Venture—In February 2014, the Company partnered with a sovereign wealth fund to form the Net Lease Venture
to acquire and develop net lease assets and gave a right of first refusal to the Net Lease Venture on all new net lease investments.
The Company has an equity interest in the Net Lease Venture 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, 2017, the Net Lease Venture acquired industrial properties
for $59.0 million. During the year ended December 31, 2017, the Company sold a net lease asset for proceeds of $6.2 million,
which approximated its carrying value net of financing, to the Net Lease Venture and derecognized the associated $18.9 million
financing. During the year ended December 31, 2017, the Company made contributions of $49.2 million to the Net Lease Venture
and received distributions of $26.0 million from the Net Lease Venture.
During the year ended December 31, 2016, the Net Lease Venture acquired two office properties and the Company made
contributions to the Net Lease Venture of $37.7 million. In November 2016, the Net Lease Venture placed five year non-recourse
financing of $29.0 million on one of its net lease assets. Net proceeds from the financing were distributed to the members of which
the Company received $13.2 million.
In June 2015, the Net Lease Venture placed ten year non-recourse 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 approximately $61.2 million.
As of December 31, 2017 and 2016, the venture's carrying value of total assets was $658.3 million and $511.3 million,
respectively. During the years ended December 31, 2017, 2016 and 2015, the Company recorded $2.1 million, $1.6 million and
$1.5 million, respectively, of management fees from the Net Lease Venture. The management fees are included in "Other income"
in the Company's consolidated statements of operations.
Safety, Income & Growth Inc.—The Company along with two institutional investors capitalized SIGI Acquisition, Inc.
("SIGI") on April 14, 2017 to acquire, manage and capitalize Ground Leases. The Company contributed $55.5 million for an initial
49% noncontrolling interest in SIGI and the two institutional investors contributed an aggregate $57.5 million for an initial 51%
86
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Notes to Consolidated Financial Statements (Continued)
iStar Inc.
controlling interest in SIGI. A wholly-owned subsidiary of the Company that held the Company's Ground Lease business and
assets merged with and into SIGI on April 14, 2017 with SIGI surviving the merger and being renamed Safety, Income & Growth
Inc. ("SAFE"). Through this merger and related transactions, the institutional investors acquired a controlling interest in the
Company's Ground Lease business. The Company's carrying value of the Ground Lease assets was approximately $161.1 million.
Shortly before the Acquisition Transactions, the Company completed the $227.0 million 2017 Secured Financing on its Ground
Lease assets (refer to Note 10). The Company received all of the proceeds of the 2017 Secured Financing. The Company received
an additional $113.0 million of proceeds in the Acquisition Transactions, including $55.5 million that the Company contributed
to SAFE in its initial capitalization. As a result of the Acquisition Transactions, the Company deconsolidated the 12 properties and
the associated 2017 Secured Financing. The Company accounted for this transaction as an in substance sale of real estate and
recognized a gain of $123.4 million, reflecting the aggregate gain less the fair value of the Company's retained interest in SAFE.
The carrying value of the 12 properties were classified in "Real estate available and held for sale" on the Company's consolidated
balance sheet as of December 31, 2016 and the gain was recorded in "Gain from discontinued operations" in the Company's
consolidated statements of operations.
On June 27, 2017, SAFE completed its initial public offering (the "Offering") raising $205.0 million in gross proceeds and
concurrently completed a $45.0 million private placement to the Company. In addition, the Company paid $18.9 million in
organization and offering costs of the up to $25.0 million in organization and offering costs it agreed to pay in connection with
the Offering and concurrent private placement through December 31, 2017, including commissions payable to the underwriters
and other offering expenses. The Company expensed the portion of offering costs that was attributable to other investors in "Other
expense" in the Company's consolidated statements of operations and capitalized the portion of offering costs attributable to the
Company's ownership interest in "Other investments" on the Company's consolidated balance sheets. Subsequent to the initial
public offering and through December 31, 2017, the Company purchased 1.8 million shares of SAFE's common stock for $34.1
million, at an average cost of $18.85 per share, pursuant to two 10b5-1 plans in accordance with Rules 10b5-1 and 10b-18 under
the Securities and Exchange Act of 1934, as amended, under which the Company could buy shares of SAFE's common stock in
the open market up to an ownership limit of 39.9%. As of December 31, 2017, the Company owned approximately 37.6% of
SAFE's common stock outstanding.
In addition, subsequent to SAFE's initial public offering, trusts established by Jay Sugarman, the Company's Chairman and
Chief Executive Officer, and Geoffrey Jervis, the Company's Chief Operating Officer and Chief Financial Officer, purchased 26
thousand shares in the aggregate of SAFE's common stock for an aggregate $0.5 million, at an average cost of $19.20 per share,
pursuant to a 10b5-1 plan in accordance with Rules 10b5-1 and 10b-18 under the Securities and Exchange Act of 1934, as amended.
As of December 31, 2017, the trusts established by Jay Sugarman, the Company's Chairman and Chief Executive Officer, and
Geoffrey Jervis, the Company's Chief Operating Officer and Chief Financial Officer, had utilized all of the availability authorized
in the 10b5-1 Plan.
A wholly-owned subsidiary of the Company is the external manager of SAFE and is entitled to a management fee, payable
solely in shares of SAFE's common stock, equal to the sum of 1.0% of SAFE's total equity up to $2.5 billion and 0.75% of SAFE's
total equity in excess of $2.5 billion. The Company is not entitled to receive any performance or incentive compensation. The
Company is also entitled to receive expense reimbursements, payable in cash or in shares of SAFE's common stock, for its personnel
that perform certain legal, accounting, due diligence tasks and other services that third-party professionals or outside consultants
otherwise would perform. The Company has agreed to waive both the management fee and certain of the expense reimbursements
through June 30, 2018. The Company has an exclusivity agreement with SAFE pursuant to which it agreed, subject to certain
exceptions, that it will not acquire, originate, invest in, or provide financing for a third party’s acquisition of, a Ground Lease
unless it has first offered that opportunity to SAFE and a majority of its independent directors has declined the opportunity.
In August 2017, the Company committed to provide a $24.0 million loan to the ground lessee of a Ground Lease originated
at SAFE. The loan has an initial term of one year and will be used for the renovation of a medical office building in Atlanta, GA.
$5.2 million of the loan was funded as of December 31, 2017. The transaction was approved by the Company's and SAFE's
independent directors.
In October 2017, the Company closed on a 99-year Ground Lease and a $80.5 million construction financing commitment
to support the ground-up development of Great Oaks Multifamily, a to-be-built 301-unit community within the Great Oaks Master
Plan of San Jose, CA. The transaction includes a combination of (i) a newly created Ground Lease and up to a $7.2 million leasehold
improvement allowance and (ii) a $80.5 million leasehold first mortgage. The Company entered into a forward purchase contract
with SAFE under which SAFE would acquire the Ground Lease in November 2020 for approximately $34.0 million. The forward
purchase contract was approved by the Company's and SAFE's independent directors.
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Notes to Consolidated Financial Statements (Continued)
iStar Inc.
Marina Palms—As of December 31, 2017, the Company owned a 47.5% equity interest in Marina Palms, a 468 unit, two
tower residential condominium development in North Miami Beach, Florida. The 234 unit north tower has one unit remaining for
sale as of December 31, 2017. The 234 unit south tower is 85% sold (based on unit count) as of December 31, 2017. 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,
2017 and 2016, the venture's carrying value of total assets was $32.4 million and $201.8 million, respectively.
Other real estate equity investments—As of December 31, 2017, the Company's other real estate equity investments
included equity interests in real estate ventures ranging from 20% to 95%, comprised of investments of $38.8 million in operating
properties and $61.3 million in land assets. As of December 31, 2016, the Company's other real estate equity investments included
$3.6 million in operating properties and $49.6 million in land assets.
In December 2016, the Company sold a land and development asset for $36.0 million to a newly formed unconsolidated
entity in which the Company owns a 50.0% equity interest (refer to Note 5). The Company recognized a gain of $8.8 million,
reflecting the Company's share of the interest sold to a third party, which was recorded as "Income from sales of real estate" in the
Company's consolidated statements of operations. The Company and its partner both made $7.0 million contributions to the venture
and the Company provided financing to the entity in the form of a $27.0 million senior loan, of which $25.4 million was funded
as of December 31, 2017. The Company received $17.6 million of net proceeds from the sale of the asset. This entity is a VIE and
the Company does not have a controlling interest due to shared control of the entity with its partner.
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 interest sold to a third party, 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 controlling interest due to
shared control of the entity with its partner.
In 2014, the Company contributed land to a newly formed unconsolidated entity in which the Company received an initial
equity interest of 85.7%. As of December 31, 2017, this entity is not a VIE and the Company does not have a controlling interest
due to shared control of the entity with the partner. Additionally, the Company committed to provide $45.7 million of mezzanine
financing to the entity. In September 2016, the entity secured non-recourse financing from a third-party lender, paid off in full the
mezzanine loan from the Company and distributed the excess proceeds from the financing to the partners. The Company received
a distribution in excess of its carrying value and recorded equity in earnings of $11.6 million. The Company had no further obligation
nor intention to fund the venture in the future. Subsequent to the distribution of the financing proceeds, the operating agreement
of the entity was amended and the Company retained a 50% interest in the entity. During the years ended December 31, 2016 and
2015, the Company recorded $3.6 million and $3.9 million of interest income, respectively. As of December 31, 2017 and 2016,
the Company had a recorded equity interest of zero.
Other strategic investments—As of December 31, 2017, the Company also had 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. As of
December 31, 2017 and 2016, the carrying value of the Company's cost method investments was $0.8 million and $1.4 million,
respectively. During the year ended December 31, 2015, the Company sold available-for-sale securities for proceeds of $7.4 million
for gains of $2.6 million, which are included in "Other income" in the Company's consolidated statements of operations. The
amount reclassified out of accumulated other comprehensive income into earnings was determined based on the specific
identification method.
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Notes to Consolidated Financial Statements (Continued)
iStar Inc.
Summarized investee financial information—The following tables present the investee level summarized financial
information of the Company's equity method investments ($ in thousands):
Balance Sheets
Total assets
Total liabilities
Noncontrolling
interests
Total equity
As of December 31,
2017
2016
$ 2,493,798
1,169,125
$ 2,803,411
683,079
13,258
1,311,415
23,544
2,096,788
Note 8—Other Assets and Other Liabilities
For the Years Ended December 31,
2017
2016
2015
Income Statements
Revenues
Expenses
Net income attributable to parent
entities
$ 261,867
(167,999)
$ 272,281
(227,720)
$
481,224
(245,968)
91,633
42,209
234,529
Deferred expenses and other assets, net, consist of the following items ($ in thousands):
Other receivables(1)
Intangible assets, net(2)
Other assets
Restricted cash
Leasing costs, net(3)
Corporate furniture, fixtures and equipment, net(4)
Deferred expenses and other assets, net
As of December 31,
2017
2016
$
56,369
$
27,124
24,490
20,045
9,050
4,652
52,820
30,727
35,189
25,883
11,802
5,691
$
141,730
$
162,112
_______________________________________________________________________________
(1) As of December 31, 2017 and 2016, includes $26.0 million of receivables related to the construction and development of an amphitheater (refer to Note
(2)
5).
Intangible assets, net includes above market, in-place and lease incentive assets related to the acquisition of real estate assets. Accumulated amortization
on intangible assets, net was $34.9 million and $31.9 million as of December 31, 2017 and 2016, respectively. The amortization of above market leases
and lease incentive assets decreased operating lease income in the Company's consolidated statements of operations by $2.5 million, $3.9 million and $6.4
million for the years ended December 31, 2017, 2016 and 2015, respectively. These intangible lease assets are amortized over the term of the lease. The
amortization expense for in-place leases was $1.9 million, $1.9 million and $3.6 million for the years ended December 31, 2017, 2016 and 2015, respectively.
These amounts are included in "Depreciation and amortization" in the Company's consolidated statements of operations. As of December 31, 2017, the
weighted average amortization period for the Company's intangible assets was approximately 19.2 years.
(3) Accumulated amortization of leasing costs was $4.7 million and $6.7 million as of December 31, 2017 and 2016, respectively.
(4) Accumulated depreciation on corporate furniture, fixtures and equipment was $10.5 million and $9.0 million as of December 31, 2017 and 2016, respectively.
89
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Notes to Consolidated Financial Statements (Continued)
iStar Inc.
Accounts payable, accrued expenses and other liabilities consist of the following items ($ in thousands):
Accrued expenses(1)
Other liabilities(2)
Accrued interest payable
Intangible liabilities, net(3)
Accounts payable, accrued expenses and other liabilities
$
$
As of December 31,
2017
2016
101,035
$
79,015
49,933
8,021
72,693
75,993
54,033
8,851
238,004
$
211,570
_______________________________________________________________________________
(1) As of December 31, 2017 and 2016, accrued expenses includes $2.5 million and $1.8 million, respectively, associated with "Real estate available and held
for sale" on the Company's consolidated balance sheets.
(2) As of December 31, 2017 and 2016, "Other liabilities" includes $29.2 million and $24.0 million, respectively, related to profit sharing arrangements with
developers for certain properties sold. As of December 31, 2017 and 2016, includes $1.6 million and $1.7 million, respectively, associated with "Real estate
available and held for sale" on the Company's consolidated balance sheets. As of December 31, 2017 and 2016, "Other liabilities" also includes $6.2 million
and $8.5 million, respectively related to tax increment financing bonds which were issued by government entities to fund development within two of the
Company's land projects. The amount represents tax assessments associated with each project, which will decrease as the Company sells units.
Intangible liabilities, net includes below market lease liabilities related to the acquisition of real estate assets. Accumulated amortization on below market
leases was $7.8 million and $6.4 million as of December 31, 2017 and 2016, respectively. The amortization of below market leases increased operating
lease income in the Company's consolidated statements of operations by $1.3 million, $1.1 million and $1.5 million for the years ended December 31, 2017,
2016 and 2015, respectively. As of December 31, 2017, the weighted average amortization period for the Company's intangible liabilities was approximately
19.2 years.
(3)
Intangible assets—The estimated expense from the amortization of intangible assets for each of the five succeeding fiscal
years is as follows ($ in thousands):
2018
2019
2020
2021
2022
$
2,151
2,112
2,084
2,053
2,049
Note 9—Loan Participations Payable, net
The Company's loan participations payable, net were as follows ($ in thousands):
Loan participations payable(1)
Debt discounts and deferred financing costs, net
Total loan participations payable, net
$
$
102,737
(312)
102,425
$
$
160,251
(930)
159,321
Carrying Value as of
December 31, 2017
December 31, 2016
_______________________________________________________________________________
(1)
As of December 31, 2017, the Company had two loan participations payable with a weighted average interest rate of 6.5%. As of December 31, 2016, the
Company had three loan participations payable with a weighted average interest rate of 4.8%.
Loan participations represent transfers of financial assets that did not meet the sales criteria established under ASC Topic
860 and are accounted for as loan participations payable, net as of December 31, 2017 and 2016. As of December 31, 2017 and
2016, the corresponding loan receivable balances were $102.3 million and $159.1 million, respectively, and are included in "Loans
receivable and other lending investments, net" on the Company's consolidated balance sheets. The principal and interest due on
these loan participations payable are paid from cash flows of the corresponding loans receivable, which serve as collateral for the
participations.
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Notes to Consolidated Financial Statements (Continued)
iStar Inc.
Note 10—Debt Obligations, net
In the third and fourth quarters of 2017, the Company completed a comprehensive set of capital markets transactions that
addressed all parts of its capital structure, resulting in the Company having:
•
•
•
•
•
•
repaid or refinanced all of the Company's 2017 and 2018 corporate debt maturities, leaving no corporate debt maturities
until July 2019;
extended its weighted average debt maturity by 1.5 years to 4.0 years;
reduced annual expenses;
lowered its cost of capital;
established new banking relationships; and
received upgrades to its corporate credit ratings from all three major ratings agencies.
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Notes to Consolidated Financial Statements (Continued)
iStar Inc.
As of December 31, 2017 and 2016, the Company's debt obligations were as follows ($ in thousands):
Carrying Value as of December 31,
2017
2016
Stated
Interest Rates
Scheduled
Maturity Date
Secured credit facilities and mortgages:
2015 $325 Million Secured Revolving Credit
Facility
$
325,000
$
— LIBOR + 2.50% (1)
LIBOR + 3.00% (2)
498,648
4.102% - 7.26% (3)
September 2020
October 2021
Various through
2026
2016 Senior Secured Credit Facility
Mortgages collateralized by net lease assets
Total secured credit facilities and mortgages
Unsecured notes:
5.85% senior notes
9.00% senior notes
4.00% senior notes(4)
7.125% senior notes(5)
4.875% senior notes(6)
5.00% senior notes(7)
4.625% senior notes(8)
6.50% senior notes(9)
6.00% senior notes(10)
5.25% senior notes(11)
3.125% senior convertible notes(12)
Total unsecured notes
Other debt obligations:
Trust preferred securities
Total debt obligations
399,000
208,491
932,491
—
—
—
—
—
770,000
400,000
275,000
375,000
400,000
287,500
249,987
748,635
99,722
275,000
550,000
300,000
300,000
770,000
—
275,000
—
—
—
2,507,500
2,569,722
100,000
100,000
LIBOR + 1.50%
October 2035
Debt discounts and deferred financing costs, net
Total debt obligations, net (13)
_______________________________________________________________________________
(1)
$
$
3,539,991
(63,591)
3,476,400
3,418,357
(28,449)
3,389,908
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
1.0% 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 September 2021.
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
1.0% and subject to a margin of 2.0% or (ii) LIBOR subject to a margin of 3.0% with a minimum LIBOR rate of 0.75%.
(2)
5.85%
March 2017
9.00%
4.00%
7.125%
4.875%
5.00%
4.625%
6.50%
6.00%
5.25%
June 2017
November 2017
February 2018
July 2018
July 2019
September 2020
July 2021
April 2022
September 2022
3.125%
September 2022
(3) As of December 31, 2017, the weighted average interest rate of these loans is 5.2%.
The Company prepaid these senior notes in October 2017 without penalty.
(4)
The Company prepaid these senior notes in October 2017 and incurred a make whole premium of $5.25 million.
(5)
The Company prepaid these senior notes in October 2017 and incurred a make whole premium of $3.66 million.
(6)
The Company can prepay these senior notes without penalty beginning July 1, 2018.
(7)
The Company can prepay these senior notes without penalty beginning June 15, 2020.
(8)
(9)
The Company can prepay these senior notes without penalty beginning July 1, 2020.
(10) The Company can prepay these senior notes without penalty beginning April 1, 2021.
(11) The Company can prepay these senior notes without penalty beginning September 15, 2021.
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Notes to Consolidated Financial Statements (Continued)
iStar Inc.
(12) The Company's 3.125% senior convertible fixed rate notes due September 2022 ("3.125% Convertible Notes") are convertible at the option of the holders
at a conversion rate of 64.36 shares per $1,000 principal amount of 3.125% Convertible Notes, which equals a conversion price of $15.54 per share, at any
time prior to the close of business on the business day immediately preceding September 15, 2022. Upon conversion, the Company will pay or deliver, as
the case may be, a combination of cash and shares of its common stock. As such, at issuance in September 2017, the Company valued the liability component
at $221.8 million, net of fees, and the equity component of the conversion feature at $22.5 million, net of fees, and recorded the equity component in
"Additional paid-in capital" on the Company's consolidated balance sheet. In October 2017, the initial purchasers of the 3.125% Convertible Notes exercised
their option to purchase an additional $37.5 million aggregate principal amount of the 3.125% Convertible Notes. At issuance, the Company valued the
liability component at $34.0 million, net of fees, and the equity component of the conversion feature at $3.4 million, net of fees, and recorded the equity
component in "Additional paid-in capital" on the Company's consolidated balance sheet. As of December 31, 2017, the carrying value of the 3.125%
Convertible Notes was $256.7 million, net of fees, and the unamortized discount of the 3.125% Convertible Notes was $25.2 million, net of fees. During
the year ended December 31, 2017, the Company recognized $2.5 million of contractual interest and $1.3 million of discount amortization on the 3.125%
Convertible Notes. The effective interest rate was 5.2%.
(13) The Company capitalized interest relating to development activities of $8.5 million, $5.8 million and $5.3 million for the years ended December 31, 2017
2016 and 2015, respectively.
Future Scheduled Maturities—As of December 31, 2017, future scheduled maturities of outstanding debt obligations are
as follows ($ in thousands):
Unsecured Debt
Secured Debt
Total
2018
2019
2020
2021
2022
Thereafter
Total principal maturities
Unamortized discounts and deferred financing costs, net
Total debt obligations, net
$
$
— $
— $
770,000
400,000
275,000
1,062,500
100,000
2,607,500
(55,390)
2,552,110
$
1,654
325,000
515,715
59,052
31,070
932,491
(8,201)
924,290
$
—
771,654
725,000
790,715
1,121,552
131,070
3,539,991
(63,591)
3,476,400
2017 Secured Financing—In March 2017, the predecessor of SAFE (which at the time was comprised of the Company's
wholly-owned subsidiaries conducting its Ground Lease business) entered into a $227.0 million secured financing transaction (the
"2017 Secured Financing") that accrued interest at 3.795% and matures in April 2027. The 2017 Secured Financing was
collateralized by the 12 properties comprising SAFE's initial portfolio. In connection with the 2017 Secured Financing, the Company
incurred $7.3 million of lender and third-party fees, substantially all of which was capitalized in "Debt obligations, net" on the
Company's consolidated balance sheets. In April 2017, the Company derecognized the 2017 Secured Financing when third parties
acquired a controlling interest in SAFE's predecessor, prior to SAFE's initial public offering (refer to Note 4).
The Company is providing a limited recourse guaranty and environmental indemnity under the 2017 Secured Financing that
will remain in effect until SAFE has achieved either an equity market capitalization of at least $500.0 million (inclusive of the
initial portfolio that the Company contributed to SAFE) or a net worth of at least $250.0 million (exclusive of the initial portfolio
that the Company contributed to SAFE), and SAFE or another replacement guarantor provides similar guaranties and indemnities
to the lenders. The management agreement with SAFE provides that SAFE may not terminate the management agreement unless
a successor guarantor reasonably acceptable to the Company has agreed to replace the Company as guarantor and indemnitor or
has provided the Company with a reasonably acceptable indemnity for any losses suffered by the Company as guarantor and
indemnitor. SAFE has generally agreed to indemnify the Company for any amounts the Company is required to pay, or other losses
the Company may suffer, under the limited recourse guaranty and environmental indemnity.
2016 Senior Secured Credit Facility—In June 2016, the Company entered into a senior secured credit facility of $450.0
million (the "2016 Senior Secured Credit Facility"). In August 2016, the Company upsized the facility to $500.0 million. The
initial $450.0 million of the 2016 Senior Secured Credit Facility was issued at 99% of par and the upsize was issued at par. In
January 2017, the Company repriced the 2016 Senior Secured Credit Facility to LIBOR plus 3.75% with a 1.00% LIBOR floor
from LIBOR plus 4.50% with a 1.00% LIBOR floor. In September 2017, the Company reduced, repriced and extended the 2016
Senior Secured Credit Facility to $400.0 million priced at LIBOR plus 3.00% with a 0.75% LIBOR floor and maturing in October
2021. These transactions resulted in an aggregate 1.50% reduction in price.
The 2016 Senior Secured Credit Facility is collateralized 1.25x by a first lien on a fixed pool of assets. Proceeds from
principal repayments and sales of collateral are applied to amortize the 2016 Senior Secured Credit Facility. Proceeds received for
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Notes to Consolidated Financial Statements (Continued)
iStar Inc.
interest, rent, lease payments and fee income are retained by the Company. The Company may also make optional prepayments,
subject to prepayment fees, and is required to repay 0.25% of the principal amount on the first business day of each quarter.
Proceeds from the 2016 Senior Secured Credit Facility, together with cash on hand, were primarily used to repay other
secured debt. In connection with the 2016 Senior Secured Credit Facility, the Company incurred $4.5 million of lender fees,
substantially all of which was capitalized in "Debt obligations, net" on the Company's consolidated balance sheets. The Company
also incurred $6.2 million in third party fees, of which $4.3 million was capitalized in “Debt obligations, net” on the Company's
consolidated balance sheets and $1.9 million was recognized in “Other expense” in the Company's consolidated statements of
operations. In connection with the repricing of the 2016 Senior Secured Credit Facility in January 2017, the Company incurred
an additional $0.8 million in fees, substantially all of which was recognized in "Other expense" in the Company's consolidated
statements of operations. In connection with the repricing of the 2016 Senior Secured Credit Facility in September 2017, the
Company incurred an additional $2.6 million in fees, of which $1.5 million was recognized in "Other expense" in the Company's
consolidated statements of operations and $1.1 million was capitalized in "Debt obligations, net" on the Company's consolidated
balance sheets.
During the year ended December 31, 2017, repayments of the 2016 Senior Secured Credit Facility resulted in losses on early
extinguishment of debt of $0.8 million.
2015 Secured Revolving Credit Facility—In March 2015, the Company entered into a secured revolving credit facility
with a maximum capacity of $250.0 million (the "2015 Secured Revolving Credit Facility"). In September 2017, the Company
upsized the 2015 Secured Revolving Credit Facility to $325.0 million, added additional lenders to the syndicate, extended the
maturity date to September 2020 and made certain other changes. 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 0.30% to 0.50% based on corporate credit ratings. At maturity,
the Company may convert outstanding borrowings to a one year term loan which matures in quarterly installments through
September 2021.
Unsecured Notes—In September 2017, the Company issued $400.0 million principal amount of 4.625% senior unsecured
notes due September 2020, $400.0 million principal amount of 5.25% senior unsecured notes due September 2022 and $250.0
million of 3.125% Convertible Notes due September 2022. The Company incurred approximately $18.6 million dollars in fees
related to these offerings, all of which was capitalized in "Debt obligations, net" on the Company's consolidated balance sheets.
Proceeds from these offerings, together with cash on hand, were used to repay in full the $550.0 million principal amount outstanding
of the 4.0% senior unsecured notes due November 2017, the $300.0 million principal amount outstanding of the 7.125% senior
unsecured notes due February 2018 and the $300.0 million principal amount outstanding of the 4.875% senior unsecured notes
due July 2018. In addition, the initial purchasers of the 3.125% Convertible Notes exercised their option to purchase an additional
$37.5 million aggregate principal amount of the 3.125% Convertible Notes.
In March 2017, the Company issued $375.0 million principal amount of 6.00% senior unsecured notes due April 2022.
Proceeds from the offering were primarily used to repay in full the $99.7 million principal amount outstanding of the 5.85% senior
unsecured notes due March 2017 and repay in full the $275.0 million principal amount outstanding of the 9.00% senior unsecured
notes due June 2017 prior to maturity. In March 2016, the Company repaid its $261.4 million principal amount outstanding of the
5.875% senior unsecured notes at maturity using available cash. In addition, the Company issued $275.0 million principal amount
of 6.50% senior unsecured notes due July 2021. Proceeds from the offering were primarily used to repay in full the $265.0 million
principal amount outstanding of the senior unsecured notes due July 2016 and repay $5.0 million of the 2015 Secured Revolving
Credit Facility.
During the years ended December 31, 2017 and 2016, repayments of senior unsecured notes prior to maturity resulted in
losses on early extinguishment of debt of $13.6 million and $0.4 million, respectively. These amounts are included in "Loss on
early extinguishment of debt, net" in the Company's consolidated statements of operations.
In November 2016, in connection with the retirement of the Company's $200.0 million principal amount of 3.0% senior
unsecured convertible notes due November 2016, the Company converted $9.6 million principal amount into 0.8 million shares
of our common stock.
94
Table of Contents
Notes to Consolidated Financial Statements (Continued)
iStar Inc.
Collateral Assets—As of December 31, 2017 and 2016, the carrying value of assets of the Company that are directly pledged
or are held by subsidiaries whose equity is pledged as collateral to secure the Company's obligations under its secured debt facilities
are as follows, by asset type ($ in thousands):
Real estate, net
Real estate available and held for sale
Land and development, net
Loans receivable and other lending investments, net(2)(3)
Other investments
Cash and other assets
Total
As of December 31,
2017
2016
Collateral
Assets(1)
Non-Collateral
Assets
Collateral
Assets(1)
Non-Collateral
Assets
$
$
795,321
20,069
25,100
194,529
—
—
1,035,019
$
$
486,710
48,519
835,211
1,021,340
321,241
898,252
3,611,273
$
$
881,212
—
35,165
172,581
—
—
1,088,958
$
$
506,062
237,531
910,400
1,142,050
214,406
590,299
3,600,748
_______________________________________________________________________________
(1)
The 2016 Senior Secured Credit Facility and the 2015 Secured Revolving Credit Facility are secured only by pledges of equity of certain of the Company's
subsidiaries and not by pledges of the assets held by such subsidiaries. Such subsidiaries are subject to contractual restrictions under the terms of such credit
facilities, including restrictions on incurring new debt (subject to certain exceptions).
(2) As of December 31, 2017 and 2016, the amounts presented exclude general reserves for loan losses of $17.5 million and $23.3 million, respectively.
(3) As of December 31, 2017 and 2016, the amounts presented exclude loan participations of $102.3 million and $159.1 million, respectively.
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, as such terms are defined in the indentures governing the debt securities,
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 governing 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 bondholders. If the Company's ability to incur additional indebtedness under the fixed charge coverage ratio is
limited, the Company is permitted to incur indebtedness for the purpose of refinancing existing indebtedness and for other permitted
purposes under the indentures.
The Company's 2016 Senior Secured Credit Facility and the 2015 Secured 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 2016 Senior Secured Credit Facility requires the Company to maintain collateral coverage of at least 1.25x outstanding
borrowings on the facility. The 2015 Secured 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 Secured 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, 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 2016 Senior Secured
Credit Facility and the 2015 Secured Revolving Credit Facility permit the Company to distribute 100% of its REIT taxable income
on an annual basis (prior to deducting certain cumulative net operating loss ("NOL") carryforwards). The Company may not pay
common dividends if it ceases to qualify as a REIT.
The Company's 2016 Senior Secured Credit Facility and the 2015 Secured Revolving Credit Facility contain cross default
provisions that would allow the lenders to declare an event of default and accelerate the Company's indebtedness 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.
95
Table of Contents
Notes to Consolidated Financial Statements (Continued)
iStar Inc.
Note 11—Commitments and Contingencies
Unfunded Commitments—The Company generally funds construction and development loans and build-outs of space in
real estate assets over a period of time if and when the borrowers and tenants meet established milestones and other performance
criteria. The Company refers to these arrangements as Performance-Based Commitments. In addition, 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, 2017, 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 and that 100% of its capital
committed to Strategic Investments is drawn down, are as follows ($ in thousands):
Performance-Based Commitments
Strategic Investments
Total
Loans and Other
Lending Investments(1)
Real Estate
Other
Investments
$
$
338,290
—
338,290
$
$
10,934
—
10,934
$
$
28,585
10,743
39,328
$
$
Total
377,809
10,743
388,552
_______________________________________________________________________________
(1)
Excludes $102.1 million of commitments on loan participations sold that are not the obligation of the Company.
Other Commitments—Total operating lease expense for the years ended December 31, 2017, 2016 and 2015 was $5.2
million, $5.9 million and $6.0 million, respectively. Future minimum lease obligations under non-cancelable operating leases are
as follows ($ in thousands):
2018
2019
2020
2021
2022
Thereafter
$
4,970
3,919
3,812
1,439
837
2,914
Legal Proceedings—The Company and/or one or more of its subsidiaries 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:
U.S. Home Corporation ("Lennar") v. Settlers Crossing, LLC, et al. (Civil Action No. DKC 08-1863)
This litigation involved a dispute over the purchase and sale of approximately 1,250 acres of land in Prince George’s County,
Maryland. Following a trial, in January 2015, the United States District Court for the District of Maryland (the District Court)
entered judgment in favor of the Company, finding that the Company was entitled to specific performance of the purchase and
sale agreement and awarding the Company the aggregate amount of: (i) the remaining unpaid purchase price; plus (ii) simple
interest on the unpaid amount at a rate of 12% annually from 2008; 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. Lennar appealed the District
Court's judgment. On April 12, 2017, the United States Court of Appeals for the Fourth Circuit affirmed the judgment of the District
Court in its entirety. Lennar’s petition for rehearing en banc was summarily denied.
On April 21, 2017, the Company and Lennar completed the transfer of the land, pursuant to which the Company conveyed
the land to Lennar and received net proceeds of $234.1 million after payment of $3.3 million in documentary transfer taxes,
consisting of $114.0 million of sales proceeds, $121.8 million of interest and $1.6 million of real estate tax reimbursements. The
interest and real estate tax reimbursements are recorded in "Other income" in the Company's consolidated statements of operations.
A portion of the net proceeds received by the Company was paid to the third party that holds a 4.3% participation interest in all
proceeds received by the Company.
96
Table of Contents
Notes to Consolidated Financial Statements (Continued)
iStar Inc.
Lennar filed a petition for a writ of certiorari with the U.S. Supreme Court seeking review of two specific issues decided in
the Company's favor by the lower courts. The Company filed a brief in opposition to the petition. On December 4, 2017, the U.S.
Supreme Court issued an order denying Lennar’s petition for a writ of certiorari.
The Company has applied for the recovery of attorneys' fees and costs it incurred in connection with the litigation. The
amount of attorneys’ fees and costs to be recovered by the Company will be determined through further proceedings before the
District Court. A hearing on the Company’s application for attorney’s fees has not yet been scheduled.
On a quarterly basis, the Company evaluates developments in legal proceedings that could require a liability to be accrued
and/or disclosed. 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 properties the subject of, any pending legal proceeding that would have a material adverse effect on the
Company's consolidated financial statements.
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 liabilities 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 investments 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, 2017, the only states with a concentration greater than 10.0% were New York with 21.7% and California
with 12.1%. As of December 31, 2017, the Company's portfolio contains concentrations in the following asset types: land 22.1%,
office/industrial 20.1%, entertainment/leisure 11.5%, condominium 11.1% and mixed use/mixed collateral 11.9%.
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, 2017, the
Company's five largest borrowers or tenants collectively accounted for approximately 15.0% of the Company's 2017 revenues, of
which no single customer accounts for more than 5.7%.
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 operating 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.
97
Table of Contents
Notes to Consolidated Financial Statements (Continued)
iStar Inc.
The table below presents the fair value of the Company's derivative financial instruments as well as their classification on
the consolidated balance sheets as of December 31, 2017 and 2016 ($ in thousands):
Derivative Assets as of December 31,
Derivative Liabilities as of December 31,
2017
2016
2017
2016
Balance Sheet
Location
Fair
Value
Balance Sheet
Location
Fair
Value
Balance Sheet
Location
Fair
Value
Balance Sheet
Location
Fair
Value
Derivatives Designated in Hedging Relationships
Foreign exchange
contracts
Interest rate swaps
Total
N/A
N/A
$ —
—
$ —
N/A
N/A
Derivatives not Designated in Hedging Relationships
Foreign exchange
contracts
Interest rate cap
Total
N/A
N/A
$ — Other Assets
— Other Assets
$ —
$ —
—
$ —
$
$
702
25
727
N/A
N/A
N/A
N/A
$ —
—
$ —
$ —
—
$ —
Other
Liabilities
Other
Liabilities
N/A
N/A
$
$
8
39
47
$ —
—
$ —
98
Table of Contents
Notes to Consolidated Financial Statements (Continued)
iStar Inc.
The tables below present the effect of the Company's derivative financial instruments in the consolidated statements of
operations and the consolidated statements of comprehensive income (loss) for the years ended December 31, 2017, 2016 and
2015 ($ in thousands):
Derivatives Designated in Hedging
Relationships
For the Year Ended December 31, 2017
Interest rate swaps
Interest rate cap
Interest rate swap
Location of Gain (Loss)
Recognized in Income
Interest Expense
Earnings from equity
method investments
Earnings from equity
method investments
Earnings from equity
method investments
Foreign exchange contracts
For the Year Ended December 31, 2016
Interest rate cap
Interest Expense
Interest rate cap
Interest rate swaps
Interest rate swaps
Foreign exchange contracts
Earnings from equity
method investments
Interest Expense
Earnings from equity
method investments
Earnings from equity
method investments
For the Year Ended December 31, 2015
Interest rate cap
Interest Expense
Interest rate cap
Interest rate swaps
Interest rate swap
Foreign exchange contracts
Earnings from equity
method investments
Interest Expense
Earnings from equity
method investments
Earnings from equity
method investments
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)
$
495
$
339
$
(16)
368
(352)
—
(4)
(175)
94
(167)
—
(13)
(537)
(528)
(124)
(16)
(285)
—
(185)
(3)
(32)
(378)
—
(626)
(1)
170
(464)
—
132
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
Derivatives not Designated in Hedging Relationships
Interest rate cap
Foreign exchange contracts
Amount of Gain or (Loss) Recognized in Income
Location of Gain or
(Loss) Recognized in
Income
Other Expense
$
Other Expense
For the Years Ended December 31,
2017
2016
2015
$
6
(970)
(1,080) $
1,115
(3,671)
2,403
Foreign Exchange Contracts—The Company is exposed to fluctuations in foreign exchange rates on investments it holds
in foreign entities. The Company used foreign exchange contracts to hedge its exposure to changes in foreign exchange rates on
its foreign investments. Foreign exchange contracts 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.
99
Table of Contents
Notes to Consolidated Financial Statements (Continued)
iStar Inc.
For derivatives designated as net investment hedges, the effective portion of changes in the fair value of the derivatives are
reported in Accumulated Other Comprehensive Income as part of the cumulative translation 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. For derivatives not
designated as net investment hedges, the changes in the fair value of the derivatives are reported in the Company's consolidated
statements of operations within "Other Expense."
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 $0.2 million, $0.1 million and $(0.1) million during the years ended December 31, 2017, 2016
and 2015, respectively, in its consolidated statements of operations.
Interest Rate Hedges—For derivatives designated as cash flow 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. For derivatives not designated
as cash flow hedges, the changes in the fair value of the derivatives are reported in the Company's consolidated statements of
operations within "Other Expense."
During the year ended December 31, 2017, the Company entered into and settled a rate lock swap in connection with the
2017 Secured Financing and a simultaneous rate lock swap with SAFE. As a result of the settlements, the Company initially
recorded a $0.4 million unrealized gain in “Accumulated other comprehensive income” on the Company’s consolidated balance
sheets and subsequently derecognized the gain when third parties acquired a controlling interest in the Company's Ground Lease
business (refer to Note 4).
Credit Risk-Related Contingent Features—The Company has agreements with each of its derivative counterparties that
contain a provision 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, 2016, the Company posted collateral of $0.4
million and is included in "Deferred expenses and other assets, net" on the Company's consolidated balance sheets. The Company's
net exposure under these contracts was zero as of December 31, 2017.
100
Table of Contents
Note 13—Equity
Notes to Consolidated Financial Statements (Continued)
iStar Inc.
Preferred Stock—On October 20, 2017, the Company redeemed all of its issued and outstanding Series E and Series F
preferred stock. Each holder of Series E and Series F preferred stock received cash in the amount of the liquidation preference of
$25.00 per share, or $240.0 million in the aggregate, plus accrued dividends of $1.1 million and $0.8 million, respectively, on its
Series E and Series F Preferred stock. The total carrying value of the Series E and Series F preferred stock was $223.7 million,
net of discounts and fees, and was recorded in "Additional paid-in-capital" and "Preferred Stock Series D, E, F, G and I, liquidation
preference $25.00 per share" on the Company's consolidated balance sheet as of December 31, 2016. The remaining liquidation
premium of $16.3 million represents a return similar to a dividend to the holders of the Series E and Series F preferred stock and,
as such, has been recorded in "Retained earnings (deficit)" on the Company's consolidated balance sheet as of December 31, 2017.
The Company had the following series of Cumulative Redeemable and Convertible Perpetual Preferred Stock outstanding
as of December 31, 2017:
Cumulative Preferential Cash
Dividends(1)(2)
Series
D
G
I
J (convertible)(4)
Total
Shares Issued
and
Outstanding
(in thousands)
4,000
3,200
5,000
4,000
16,200
Par Value
$ 0.001
0.001
0.001
0.001
$
Liquidation
Preference(3)(4)
25.00
25.00
25.00
50.00
Rate per
Annum
Equivalent to
Fixed Annual
Rate
(per share)
8.00% $
7.65%
7.50%
4.50%
2.00
1.91
1.88
2.25
Carrying
Value
(in thousands)
89,041
$
72,664
120,785
193,510
476,000
$
101
Table of Contents
Notes to Consolidated Financial Statements (Continued)
iStar Inc.
The Company had the following series of Cumulative Redeemable and Convertible Perpetual Preferred Stock outstanding
as of December 31, 2016:
Series
D
E
F
G
I
J (convertible)(4)
Total
Shares Issued
and
Outstanding
(in thousands)
4,000
5,600
4,000
3,200
5,000
4,000
25,800
$
Par Value
$ 0.001
0.001
0.001
0.001
0.001
0.001
Cumulative Preferential Cash
Dividends(1)(2)
Liquidation
Preference(3)(4)
Rate per
Annum
Equivalent to
Fixed Annual
Rate
(per share)
25.00
25.00
25.00
25.00
25.00
50.00
8.00% $
7.875%
7.80%
7.65%
7.50%
4.50%
2.00
1.97
1.95
1.91
1.88
2.25
Carrying
Value
(in thousands)
89,041
$
127,136
96,550
72,664
120,785
193,510
699,686
$
(2)
_______________________________________________________________________________
(1) Holders of shares of the Series D, 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.
The Company declared and paid dividends of $8.0 million, $8.3 million, $5.9 million, $6.1 million and $9.4 million on its Series D, E, F, G and I Cumulative
Redeemable Preferred Stock during the year ended December 31, 2017. In addition, in October 2017, the Company redeemed its Series E and Series F
Preferred Stock and paid dividends through the redemption date of $1.1 million and $0.8 million, respectively, on its Series E and Series F Preferred Stock
and paid a liquidation premium of $16.3 million representing a return similar to a dividend to the holders of the Series E and Series F Preferred Stock. 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 year ended December 31, 2016. The Company declared and paid dividends of $9.0 million on its Series J Convertible
Perpetual Preferred Stock during the years ended December 31, 2017 and 2016. The character of the 2017 dividends was 100% capital gain distribution,
of which 27.90% represented unrecaptured section 1250 gain and 72.10% long term capital gain. The character of the 2016 dividends was as follows:
47.30% was a capital gain distribution, of which 76.15% represented unrecaptured section 1250 gain and 23.85% long term capital gain, and 52.70% was
ordinary income. There are no dividend arrearages on any of the preferred shares currently outstanding.
The Company may, at its option, redeem the Series G and I 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 $25.00 per share, plus accrued and unpaid dividends, if any, to the redemption date.
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.
(3)
(4)
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 were paid on the Company's common stock. Each of these three plans had 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 carried 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
102
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Notes to Consolidated Financial Statements (Continued)
iStar Inc.
an arms-length exchange offer. HPU holders could have elected 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 reduction to retained earnings (deficit) in the Company's consolidated statements of changes in equity.
Dividends—To maintain its qualification as a REIT, the Company must annually 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 eliminate corporate federal income taxes payable by the REIT. 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, 2016, the Company had $948.8
million of NOL carryforwards at the corporate REIT level that can generally be used to offset both ordinary taxable income and
capital gain net income in future years. The NOL carryforwards will expire beginning in 2029 and through 2036 if unused. The
amount of NOL carryforwards as of December 31, 2017 will be determined upon finalization of the Company's 2017 tax return.
Because taxable income differs from cash flow from operations due to non-cash revenues 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 payments in excess of operating cash flows. The 2016 Senior Secured Credit Facility
and the 2015 Secured 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), as long as the Company maintains its REIT qualification. The
2016 Senior Secured Credit Facility and the 2015 Secured 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, 2017 and 2016.
Stock Repurchase Program—As of December 31, 2017, the Company had authorization to repurchase up to $50.0 million
of common stock from time to time in open market or privately negotiated transactions, including pursuant to one or more trading
plans. In December 2017, the Company entered into a 10b5-1 plan (the "10b5-1 Plan") in accordance with Rule 10b5-1 under the
Securities and Exchange Act of 1934, as amended, to facilitate repurchases. Whether and how many shares will be repurchased
is uncertain and dependent on prevailing market prices and trading volumes, which we cannot predict. During the year ended
December 31, 2016, the Company repurchased 10.2 million shares of its outstanding common stock for $98.4 million, at an average
cost of $9.67 per share. During the year ended December 31, 2015, the Company repurchased 5.7 million shares of its outstanding
common stock for $70.4 million, at an average cost of $12.25 per share.
In addition, in connection with the sale of the 3.125% Convertible Notes in September 2017 (refer to Note 10), the Company
repurchased 4.0 million shares of its common stock for $45.9 million at an average cost of $11.51 per share in privately negotiated
transactions with purchasers of the 3.125% Convertible Notes.
Accumulated Other Comprehensive Income (Loss)—"Accumulated other comprehensive income (loss)" reflected in the
Company's shareholders' equity is comprised of the following ($ in thousands):
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)
$
$
1,335
$
707
(4,524)
(2,482) $
149
27
(4,394)
(4,218)
As of December 31,
2017
2016
Note 14—Stock-Based Compensation Plans and Employee Benefits
Stock-Based Compensation—The Company recorded stock-based compensation expense, including the effect of
performance incentive plans (see below), of $18.8 million, $10.9 million and $12.0 million, respectively, for the years ended
December 31, 2017, 2016 and 2015 in "General and administrative" in the Company's consolidated statements of operations. As
of December 31, 2017, there was $1.8 million of total unrecognized compensation cost related to all unvested restricted stock units
that is expected to be recognized over a weighted average remaining vesting/service period of 1.70 years.
103
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Notes to Consolidated Financial Statements (Continued)
iStar Inc.
Performance Incentive Plans—The Company's Performance Incentive Plan ("iPIP") is designed to provide, primarily to
senior executives and select professionals engaged in the Company's investment activities, long-term compensation which has a
direct relationship to the realized returns on investments included in the plan. The following is a summary of granted iPIP points.
•
In May 2014, the Company granted 73.0 iPIP points for the initial 2013-2014 investment pool.
•
•
•
•
In January 2015, the Company granted an additional 10.0 points for the 2013-2014 investment pool and 34.0
iPIP points for the 2015-2016 investment pool.
In January 2016, the Company granted an additional 10.0 iPIP points in the 2013-2014 investment pool and an
additional 40.0 iPIP points in the 2015-2016 investment pool.
In June 2016, the Company granted an additional 2.5 points in the 2015-2016 investment pool.
In February 2017, the Company granted an additional 5.0 iPIP points in the 2013-2014 investment pool, an
additional 18.0 iPIP points in the 2015-2016 investment pool and 44.0 iPIP points in the 2017-2018 investment
pool.
As of December 31, 2017, 11.6 iPIP points from the 2013-2014 investment pool, 10.0 iPIP points from the 2015-2016
investment pool and 4.3 iPIP points from the 2017-2018 investment pool were forfeited.
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 forecasts 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, 2017 and 2016, the Company had
accrued compensation costs relating to iPIP of $38.1 million and $22.4 million, respectively, which are included in "Accounts
payable, accrued expenses and other liabilities" on the Company's consolidated balance sheets.
Long-Term Incentive Plan—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. Shareholders approved amendments to the 2009 LTIP and the performance-based provisions of the 2009 LTIP in 2014.
The 2009 LTIP provides for awards of stock options, shares of restricted stock, phantom shares, restricted stock units, dividend
equivalent rights and other share-based performance awards. A maximum of 8.0 million 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.
As of December 31, 2017, an aggregate of 3.3 million shares remain available for issuance pursuant to future awards under
the Company's 2009 LTIP.
Restricted Share Issuances—During the year ended December 31, 2017, the Company granted 97,697 shares of common
stock to certain employees under the 2009 LTIP as part of annual incentive awards that included a mix of cash and equity awards.
The weighted average grant date fair value per share of these share awards was $12.04 and the total fair value was $1.2 million.
The shares are fully-vested and 62,704 shares were issued net of statutory minimum required tax withholdings. The employees
are restricted from selling these shares for up to 18 months from the date of grant.
104
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Restricted Stock Units
Notes to Consolidated Financial Statements (Continued)
iStar Inc.
Changes in non-vested restricted stock units ("Units") during the year ended December 31, 2017 were as follows (number
of shares and $ in thousands, except per share amounts):
Non-vested as of December 31, 2016
Granted
Vested
Forfeited
Non-vested as of December 31, 2017
Number
of Shares
Weighted Average
Grant Date
Fair Value
Per Share
290
$
$
116
(75) $
(49) $
$
282
11.33
12.09
12.15
13.95
10.98
$
$
Aggregate
Intrinsic
Value
3,578
3,183
The total fair value of Units vested during the years ended December 31, 2017, 2016 and 2015 was $0.9 million, $2.9 million
and $0.1 million, respectively. The weighted-average grant date fair value per share of Units granted during the years ended
December 31, 2017, 2016 and 2015 was $12.09, $10.11 and $13.65, respectively.
As of December 31, 2017, 37,513 market-based Units did not meet the criteria to vest. The market-condition was based on
the Company's TSR measured over a performance period ending on the vesting date of December 31, 2017. Under the terms of
these Units, vesting ranged 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 and any companies not included in the index at the
beginning and end of the performance period were excluded from calculation of the performance of such index. Based on the
Company's TSR performance, the Units were below the minimum threshold payout level, resulting in no payout of awards.
2017 Restricted Stock Unit Activity—During the year ended December 31, 2017, the Company granted new stock-based
compensation awards to certain employees in the form of long-term incentive awards, comprised of the following:
• 115,571 service-based Units granted on February 22, 2017, representing 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, 2019, if the employee remains employed by
the Company on the vesting date, subject to certain provisions relating to termination of employment. 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, 2017, 111,642 of such service-based Units were outstanding.
As of December 31, 2017, the Company had the following additional stock-based compensation awards outstanding:
• 60,000 service-based Units granted on June 15, 2016, representing 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 vest in equal annual installments over four years on each anniversary of the grant date, if the
employee remains employed by the Company on the vesting date, subject to certain provisions relating to termination of
employment. Upon vesting of these Units, the holder will receive shares of the Company's common stock in the amount
of the vested Units, net of statutory minimum required tax withholdings. 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.
• 105,285 service-based Units granted on January 29, 2016, representing 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, 2018, if the employee remains employed by the
Company on the vesting date, subject to certain provisions relating to termination of employment. 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.
• 4,751 service-based Units granted on various dates, representing 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 vest in equal annual installments over three years on each anniversary of the grant date, if the
105
Table of Contents
Notes to Consolidated Financial Statements (Continued)
iStar Inc.
employee remains employed by the Company on the vesting date, subject to certain conditions relating to termination of
employment. Upon vesting of these Units, holders will receive shares of the Company's common stock in the amount of
the vested Units, net of statutory minimum required tax withholdings. 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 CSEs or restricted share awards 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,
2017, the Company awarded to non-employee Directors 56,817 restricted shares of common stock at a fair value per share of
$11.86 at the time of grant. These restricted shares have a vesting term of one year. 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 CSEs and restricted shares
of common stock vest and are settled. As of December 31, 2017, a combined total of 317,664 CSEs and restricted shares of common
stock granted to members of the Company's Board of Directors remained outstanding under the Company's Non-Employee Directors
Deferral Plan, with an aggregate intrinsic value of $3.6 million.
401(k) Plan—The Company has a savings and retirement plan (the "401(k) Plan"), which is a voluntary, defined contribution
plan. All employees 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 compensation 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 participant's contributions, up to a maximum of 10% of the participants compensation. The Company made gross
contributions of $1.1 million, $1.0 million and $1.0 million, respectively, for the years ended December 31, 2017, 2016 and 2015.
Note 15—Earnings Per Share
Earnings per share ("EPS") is calculated using the two-class method, which allocates earnings among common stock and
participating securities to calculate EPS when an entity's capital structure includes either two or more classes of common stock or
common stock and participating securities. HPU holders were current and former Company employees who purchased high
performance common stock units under the Company's High Performance Unit Program. These HPU units were treated as a
separate class of common stock. All of the Company's outstanding HPUs were repurchased and retired on August 13, 2015 (refer
to Note 13).
106
Table of Contents
Notes to Consolidated Financial Statements (Continued)
iStar Inc.
The following table presents a reconciliation of income (loss) from continuing operations used in the basic and diluted EPS
calculations ($ in thousands, except for per share data):
Income (loss) from continuing operations
Income from sales of real estate
Net (income) loss attributable to noncontrolling interests
Preferred dividends
Premium above book value on redemption of preferred stock
Income (loss) from continuing operations attributable to iStar Inc. and
allocable to common shareholders, HPU holders and Participating Security
Holders for basic earnings per common share(1)
Add: Effect of joint venture shares
Income (loss) from continuing operations attributable to iStar Inc. and
allocable to common shareholders, HPU holders and Participating Security
Holders for diluted earnings per common share(1)
_______________________________________________________________________________
(1)
For the Years Ended December 31,
2017
2016
2015
(40,198) $
92,049
(4,526)
(48,444)
(16,314)
(23,384) $
105,296
(4,876)
(51,320)
—
(115,050)
93,816
3,722
(51,320)
—
(17,433) $
—
25,716
$
7
(68,832)
—
(17,433) $
25,723
$
(68,832)
$
$
$
For the year ended December 31, 2016, includes income from continuing operations allocable to Participating Security Holders of $8 and $8 on a basic
and dilutive basis, respectively.
107
Table of Contents
Notes to Consolidated Financial Statements (Continued)
iStar Inc.
For the Years Ended December 31,
2017
2016
2015
Earnings allocable to common shares:
Numerator for basic earnings per share:
Income (loss) from continuing operations attributable to iStar Inc. and
allocable to common shareholders
$
Income from discontinued operations
Gain from discontinued operations
(17,433) $
4,939
123,418
25,708
$
18,264
—
(67,449)
14,774
—
Net income (loss) attributable to iStar Inc. and allocable to common
shareholders
$
110,924
$
43,972
$
(52,675)
Numerator for diluted earnings per share:
Income (loss) from continuing operations attributable to iStar Inc. and
allocable to common shareholders
$
Income from discontinued operations
Gain from discontinued operations
(17,433) $
4,939
123,418
25,715
$
18,264
—
(67,449)
14,774
—
Net income (loss) attributable to iStar Inc. and allocable to common
shareholders
$
110,924
$
43,979
$
(52,675)
Denominator for basic and diluted earnings per share:
Weighted average common shares outstanding for basic earnings per
common share
Add: Effect of assumed shares issued under treasury stock method or
restricted stock units
Add: Effect of joint venture shares
71,021
73,453
84,987
—
—
84
298
—
—
Weighted average common shares outstanding for diluted earnings per
common share
71,021
73,835
84,987
Basic earnings per common share:
Income (loss) from continuing operations attributable to iStar Inc. and
allocable to common shareholders
Income from discontinued operations
Gain from discontinued operations
Net income (loss) attributable to iStar Inc. and allocable to common
shareholders
Diluted earnings per common share:
Income (loss) from continuing operations attributable to iStar Inc. and
allocable to common shareholders
Income from discontinued operations
Gain from discontinued operations
Net income (loss) attributable to iStar Inc. and allocable to common
shareholders
$
$
$
$
(0.25) $
0.07
1.74
$
0.35
0.25
—
(0.79)
0.17
—
1.56
$
0.60
$
(0.62)
(0.25) $
0.07
1.74
$
0.35
0.25
—
(0.79)
0.17
—
1.56
$
0.60
$
(0.62)
108
Table of Contents
Notes to Consolidated Financial Statements (Continued)
iStar Inc.
Earnings allocable to HPUs (1):
Numerator for basic and diluted earnings per HPU share:
Income (loss) from continuing operations attributable to iStar Inc. and
allocable to HPU holders
Income from discontinued operations
Net income (loss) attributable to iStar Inc. and allocable to HPU holders
Denominator for basic and diluted earnings per HPU share:
Weighted average HPUs outstanding for basic and diluted earnings per
share
Basic and diluted earnings per HPU share:
Income (loss) from continuing operations attributable to iStar Inc. and
allocable to HPU holders
Income from discontinued operations
Net income (loss) attributable to iStar Inc. and allocable to HPU holders
$
$
$
$
For the Years Ended December 31,
2017
2016
2015
— $
—
— $
— $
—
— $
(1,383)
303
(1,080)
—
—
9
— $
—
— $
— $
—
— $
(153.67)
33.67
(120.00)
_______________________________________________________________________________
(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, 2017, 2016 and 2015, the following shares were not included in the diluted EPS calculation
because they were anti-dilutive (in thousands)(1)(2)(3)(4):
Joint venture shares
3.00% convertible senior unsecured notes
Series J convertible perpetual preferred stock
1.50% convertible senior unsecured notes
For the Years Ended December 31,
2017
2016
2015
255
—
15,635
—
—
14,764
15,635
9,868
298
16,992
15,635
11,567
_______________________________________________________________________________
(1)
(2)
(3)
(4)
For the year ended December 31, 2015, the effect of the Company's unvested Units, market-based Units and CSEs were anti-dilutive.
For the year ended December 31, 2016, the effect of 16 and 125 unvested time and market-based Units, respectively, were anti-dilutive.
For the year ended December 31, 2017, the effect of 6 and 17 unvested time and market-based Units, respectively, were anti-dilutive.
The Company will settle conversions of the 3.125% Convertible Notes by paying the conversion value in cash up to the original principal amount of the
notes being converted and shares of common stock to the extent of any conversion premium. The amount of cash and shares of common stock, if any, due
upon conversion will be based on a daily conversion value calculated for each trading day in a 40 consecutive day observation period. Based upon the
conversion price of the 3.125% Convertible Notes, no shares of common stock would have been issuable upon conversion of the 3.125% Convertible Notes
for the year ended December 31, 2017 and therefore the 3.125% Convertible Notes had no effect on diluted EPS for such periods.
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 accessible 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., supported by little or no market activity).
109
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Notes to Consolidated Financial Statements (Continued)
iStar Inc.
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 specific 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):
As of December 31, 2017
Recurring basis:
Available-for-sale securities(1)
Non-recurring basis:
Quoted market
prices in
active markets
(Level 1)
Fair Value Using
Significant other
observable
inputs
(Level 2)
Significant
unobservable
inputs
(Level 3)
Total
$
22,842
$
— $
— $
22,842
Impaired real estate(2)
Impaired real estate available and held for sale(3)
Impaired land and development(4)
12,400
800
21,400
—
—
—
—
—
—
As of December 31, 2016
Recurring basis:
Derivative assets(1)
Derivative liabilities(1)
Available-for-sale securities(1)
Non-recurring basis:
Impaired loans(5)
Impaired real estate(6)
$
727
$
— $
727
$
47
21,666
7,200
3,063
—
—
—
—
47
—
—
—
12,400
800
21,400
—
—
21,666
7,200
3,063
_______________________________________________________________________________
(1)
The fair value of the Company's derivatives are based upon widely accepted valuation techniques utilized by a third-party specialist using observable inputs
such as interest rates and contractual cash flow and are classified as Level 2. The fair value of the Company's available-for-sale securities are based upon
unadjusted third-party broker quotes and are classified as Level 3.
The Company recorded an impairment on a real estate asset with a fair value of $12.4 million based on market comparable sales.
The Company recorded an impairment on a residential real estate asset available and held for sale based on market comparable sales.
The Company recorded an impairment on a land and development asset with a fair value of $21.4 million based on a discount rate of 6% and a 10 year
holding period.
The Company recorded a provision for loan losses on one loan with a fair value of $5.2 million using an appraisal based on market comparable sales. In
addition, the Company recorded a recovery of loan losses on one loan with a fair value of $2.0 million based on proceeds to be received.
The Company recorded an impairment on a real estate asset with a fair value of $3.1 million based on a discount rate of 11% using discounted cash flows
over a two year sellout period.
(2)
(3)
(4)
(5)
(6)
The following table summarizes changes in Level 3 available-for-sale securities reported at fair value on the Company's
consolidated balance sheets for the years ended December 31, 2017 and 2016 ($ in thousands):
Beginning balance
Purchases
Repayments
Unrealized gains recorded in other comprehensive income
Ending balance
2017
2016
21,666
$
—
(10)
1,186
22,842
$
1,161
20,240
(10)
275
21,666
$
$
Fair values of financial instruments—The Company's estimated fair values of its loans receivable and other lending
investments and outstanding debt was $1.3 billion and $3.7 billion, respectively, as of December 31, 2017 and $1.5 billion and
110
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Notes to Consolidated Financial Statements (Continued)
iStar Inc.
$3.6 billion, respectively, as of December 31, 2016. 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 financial instruments, including derivative assets and liabilities, are included in the
fair value hierarchy table above.
Given the nature of certain assets and liabilities, clearly determinable 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 parties. 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 foreign currency risk. The valuation of these instruments is determined using discounted cash flow analysis on the expected
cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and
uses observable market-based inputs, including 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 properties, 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 current 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 significant 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, 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 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 characteristics and
credit quality. The Company determined that the significant inputs used to value its loans and other lending investments fall within
111
Table of Contents
Notes to Consolidated Financial Statements (Continued)
iStar Inc.
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 hierarchy. 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 determines best reflect current market interest rates that would be charged for debt
with similar characteristics and credit quality. The Company has determined 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 the Company's activities and operations related to the ownership of
properties generally leased to single corporate tenants. The Operating Properties segment includes 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.
The Company evaluates performance based on the following financial measures for each segment. The Company's segment
information is as follows ($ in thousands):
Year Ended December 31, 2017
Operating lease income
$
— $
123,685
$
63,159
$
840
$
— $
187,684
Real Estate
Finance
Net Lease
Operating
Properties
Land and
Development
Corporate/
Other(1)
Company
Total
Interest income
Other income
Land development revenue
Earnings (loss) from equity method
investments
Income from discontinued operations
Gain from discontinued operations
Income from sales of real estate
106,548
2,633
—
—
—
—
—
Total revenue and other earnings
109,181
—
—
(1,413)
(40,359)
(15,223)
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
$
$
—
2,603
—
5,086
4,939
123,418
87,512
347,243
(16,742)
—
—
—
49,641
—
—
126,259
196,879
(772)
7,292
—
—
4,537
116,565
(89,725)
—
—
—
—
—
331,270
(41,150)
(180,916)
—
(28,033)
(16,483)
—
6,955
—
1,409
—
—
—
8,364
—
—
(19,541)
(52,413)
(20,726)
106,548
188,091
196,879
13,015
4,939
123,418
92,049
912,623
(147,617)
(180,916)
(20,954)
(194,686)
(80,070)
(53,710)
(19,563)
(20,171)
(8,075)
52,186
$
257,228
$
(1,406) $
64,688
$
(84,316) $
288,380
(5,828) $
— $
— $
— $
— $
(5,828)
—
—
—
5,486
28,132
4,838
6,358
17,684
35,754
20,535
1,896
125,744
—
1,321
—
32,379
49,033
166,336
112
Table of Contents
Notes to Consolidated Financial Statements (Continued)
iStar Inc.
Year Ended December 31, 2016
Operating lease income
$
— $
126,164
$
64,593
$
423
$
— $
191,180
Real Estate
Finance
Net Lease
Operating
Properties
Land and
Development
Corporate/
Other(1)
Company
Total
Interest income
Other income
Land development revenue
Earnings (loss) from equity method
investments
Income from discontinued operations
Income from sales of real estate
129,153
4,658
—
—
—
—
Total revenue and other earnings
133,811
—
—
(2,719)
(57,787)
(15,311)
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
$
$
—
1,632
—
3,567
18,270
21,138
170,771
(18,158)
—
—
—
33,216
—
33,863
—
75,357
207,029
(82,401)
—
—
(65,880)
(17,585)
(23,156)
(6,574)
—
3,170
88,340
30,012
—
8,801
130,746
(36,963)
(62,007)
—
(34,888)
(13,693)
—
3,838
—
9,907
—
—
13,745
—
—
(3,164)
(39,687)
(19,975)
129,153
46,514
88,340
77,349
18,270
105,296
656,102
(137,522)
(62,007)
(5,883)
(221,398)
(73,138)
57,994
$
69,148
$
94,898
$
(16,805) $
(49,081) $
156,154
(12,514) $
— $
— $
— $
— $
(12,514)
—
—
—
4,829
31,380
3,667
5,855
17,887
56,784
3,800
1,296
109,548
—
1,097
—
14,484
51,660
169,999
113
Table of Contents
Notes to Consolidated Financial Statements (Continued)
iStar Inc.
Year Ended December 31, 2015
Operating lease income
$
— $
132,968
$
77,454
$
785
$
— $
211,207
Real Estate
Finance
Net Lease
Operating
Properties
Land and
Development
Corporate/
Other(1)
Company
Total
Interest income
Other income
Land development revenue
Earnings (loss) from equity method
investments
Income from discontinued operations
Income from sales of real estate
134,687
9,737
—
—
—
—
Total revenue and other earnings
144,424
—
350
—
5,221
15,077
40,082
193,698
(21,614)
—
—
—
34,637
—
1,663
—
53,734
167,488
(95,888)
—
—
(66,504)
(15,569)
(28,014)
(6,988)
—
1,219
100,216
16,683
—
—
118,903
(29,007)
(67,382)
—
(32,087)
(11,488)
—
3,981
—
8,586
—
—
12,567
—
—
(4,083)
(40,925)
(22,091)
134,687
49,924
100,216
32,153
15,077
93,816
637,080
(146,509)
(67,382)
(6,374)
(224,639)
(69,264)
90,011
$
36,598
$
(21,061) $
(54,532) $
122,912
— $
—
34,936
4,195
— $
— $
— $
5,935
24,548
84,103
4,589
1,422
94,971
—
1,139
—
36,567
10,524
62,045
183,269
—
—
(2,291)
(57,109)
(13,128)
71,896
36,567
—
—
—
$
$
$
$
$
— $
815,783
$
466,248
$
— $
— $ 1,282,031
—
—
—
1,300,655
—
815,783
68,588
534,836
—
—
—
—
—
205,007
38,761
—
—
860,311
—
63,855
$ 1,300,655
$ 1,020,790
$
573,597
$
924,166
$
—
—
—
—
13,618
13,618
68,588
1,350,619
860,311
1,300,655
321,241
3,832,826
898,252
$ 4,731,078
$
— $
911,112
$
476,162
$
— $
— $ 1,387,274
—
—
—
1,450,439
155,051
1,066,163
82,480
558,642
—
—
—
—
—
92,669
3,583
—
—
945,565
—
84,804
$ 1,450,439
$ 1,158,832
$
562,225
$ 1,030,369
$
—
—
—
—
33,350
33,350
237,531
1,624,805
945,565
1,450,439
214,406
4,235,215
590,299
$ 4,825,514
114
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
As of December 31, 2017
Real estate
Real estate, net
Real estate available and held for sale
Total real estate
Land and development, net
Loans receivable and other lending
investments, net
Other investments
Total portfolio assets
Cash and other assets
Total assets
As of December 31, 2016
Real estate
Real estate, net
Real estate available and held for sale
Total real estate
Land and development, net
Loans receivable and other lending
investments, net
Other investments
Total portfolio assets
Cash and other assets
Total assets
Table of Contents
Notes to Consolidated Financial Statements (Continued)
iStar Inc.
_______________________________________________________________________________
(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 $18.8 million, $10.9 million and $12.0 million for the years ended December 31,
2017, 2016 and 2015, respectively.
The following is a reconciliation of segment profit to net income (loss) ($ in thousands):
(3)
Segment profit
Less: Recovery of (provision for) loan losses
Less: Impairment of assets
Less: Depreciation and amortization
Less: Stock-based compensation expense
Less: Income tax benefit (expense)
Less: Loss on early extinguishment of debt, net
Net income (loss)
For the Years Ended December 31,
2017
2016
2015
$
288,380
$
156,154
$
5,828
(32,379)
(49,033)
(18,812)
948
(14,724)
12,514
(14,484)
(51,660)
(10,889)
10,166
(1,619)
$
180,208
$
100,182
$
122,912
(36,567)
(10,524)
(62,045)
(12,013)
(7,639)
(281)
(6,157)
115
Table of Contents
Notes to Consolidated Financial Statements (Continued)
iStar Inc.
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).
2017:
Revenue
Net income (loss)
Income from discontinued operations
Earnings per common share data(1):
Net income (loss) attributable to iStar Inc.
Basic
Diluted
Earnings per share
Basic
Diluted
Weighted average number of common shares
Basic
Diluted
2016:
Revenue
Net income (loss)
Income from discontinued operations
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
December 31,
September 30,
June 30,
March 31,
For the Quarters Ended
$
$
$
$
$
$
$
$
$
$
$
$
$
$
103,144
3,290
$
$
119,872
$
(3,716) $
347,867
196,007
$
$
— $
— $
(173) $
(4,910) $
(4,910) $
(34,530) $
(34,530) $
177,467
179,722
(0.07) $
(0.07) $
(0.48) $
(0.48) $
68,200
68,200
71,713
71,713
$
$
$
$
$
$
$
98,571
$
(8,461) $
7,336
$
124,054
58,155
3,721
(19,252) $
(19,252) $
46,292
51,453
(0.27) $
(0.27) $
0.65
0.44
71,603
71,603
71,210
115,666
2.46
2.04
72,142
88,195
122,360
59,787
3,633
38,112
43,293
0.52
0.37
73,984
118,510
$
$
$
$
$
$
$
$
$
$
$
108,319
(15,372)
(4,766)
(27,102)
(27,102)
(0.38)
(0.38)
72,065
72,065
110,202
(9,299)
3,580
(21,187)
(21,187)
(0.27)
(0.27)
77,060
77,060
_______________________________________________________________________________
(1) Basic and diluted EPS are computed independently based on the weighted-average shares of common stock and stock equivalents outstanding for each
(2)
period. Accordingly, the sum of the quarterly EPS amounts may not agree to the total for the year.
For the quarter ended June 30, 2016 includes net income attributable to iStar Inc. and allocable to Participating Security Holders of $20 and $14 on a basic
and dilutive basis, respectively.
116
Table of Contents
iStar Inc.
Schedule II—Valuation and Qualifying Accounts and Reserves
($ in thousands)
Balance at
Beginning
of Period
Charged to
Costs and
Expenses
Adjustments
to Valuation
Accounts
Deductions
Balance at
End
of Period
108,165
3,384
53,910
165,459
85,545
2,588
66,498
154,631
78,489
2,610
63,258
144,357
For the Year Ended December 31, 2015
Reserve for loan losses(1)(2)
Allowance for doubtful accounts(2)
Allowance for deferred tax assets(2)
For the Year Ended December 31, 2016
Reserve for loan losses(1)(2)
Allowance for doubtful accounts(2)
Allowance for deferred tax assets(2)
For the Year Ended December 31, 2017
Reserve for loan losses(1)(2)
Allowance for doubtful accounts(2)
Allowance for deferred tax assets(2)
$
$
$
$
$
3,646
54,318
156,454
108,165
3,384
53,910
165,459
85,545
2,588
66,498
$
$
$
$
98,490
$
36,567
$
1,359
(310)
37,616
$
— $
—
(98)
(98) $
(26,892) $
(1,621)
—
(28,513) $
(12,514) $
985
3,233
(8,296) $
— $
—
15,838
15,838
$
(10,106) $
(1,781)
(6,483)
(18,370) $
(5,828) $
473
7,108
— $
—
(9,318)
(9,318) $
(1,228) $
(451)
(1,030)
(2,709) $
_____________________________________________________________
(1)
(2)
Refer to Note 6 to the Company's consolidated financial statements.
Refer to Note 3 to the Company's consolidated financial statements.
$
154,631
$
1,753
$
117
Table of Contents
iStar Inc.
Schedule III—Real Estate and Accumulated Depreciation
As of December 31, 2017
($ in thousands)
Location
Encumbrances
Land
Building and
Improvements
Initial Cost to Company
Cost
Capitalized
Subsequent to
Acquisition(2)
Gross Amount Carried
at Close of Period
Land
Building and
Improvements
Total
Accumulated
Depreciation
Date
Acquired
Depreciable
Life
(Years)
— (1)
$
1,033
$
6,652
$
2,942
$
1,033
$
9,594
$
10,627
$
OFFICE FACILITIES:
Tempe, Arizona
OAZ002
$
Tempe, Arizona
OAZ003
Tempe, Arizona
OAZ004
Tempe, Arizona
OAZ005
— (1)
— (1)
— (1)
Ft. Collins,
Colorado
OCO002
1,654
(1)
Largo, Maryland
OMD001
9,068
(1)
Chelmsford,
Massachusetts
Mt. Laurel, New
Jersey
Riverview, New
Jersey
Riverview, New
Jersey
Harrisburg,
Pennsylvania
Irving, Texas
OMA001
9,187
(1)
ONJ001
49,984
ONJ002
8,491
(1)
ONJ003
22,579
(1)
OPA001
OTX001
— (1)
— (1)
Richardson, Texas
OTX004
—
Los Angeles,
California
Fremont,
California
ICA006
Golden, Colorado
ICO001
Jacksonville,
Florida
IFL002
14,516
(1)
— (1)
— (1)
1,033
1,033
701
—
1,800
1,600
7,726
1,008
2,456
690
1,364
1,230
6,652
6,652
4,339
16,752
18,706
21,947
74,429
13,763
28,955
26,098
10,628
5,660
287
583
2,180
48
741
285
10
206
814
(4,578)
5,780
1,046
1,033
1,033
701
—
1,800
1,600
7,724
1,008
2,456
690
2,373
1,230
6,939
7,235
6,519
7,972
8,268
7,220
16,800
16,800
19,447
21,247
22,232
23,832
74,441
82,165
13,969
14,977
29,769
32,225
21,520
15,399
22,210
17,772
6,706
7,936
Subtotal
$
100,963
$
21,674
$
241,233
$
10,344
$
22,681
$
250,570
$
273,251
$
INDUSTRIAL FACILITIES:
Avondale, Arizona IAZ001
Avondale, Arizona IAZ002
— (1)
— (1)
2,519
3,279
7,481
5,221
2,242
5,274
2,519
3,279
9,723
12,243
10,495
13,773
ICA001
16,756
(1)
11,635
19,515
5,943
11,635
25,458
37,093
1,086
832
3,510
7,964
1,379
3,921
1,086
11,885
12,971
—
832
1,379
2,211
20,846
8,279
3,510
29,125
32,635
118
4,006
3,142
3,128
1,992
6,616
7,579
8,852
28,032
4,780
10,237
10,609
7,279
2,801
99,053
2,639
3,308
6,405
5,739
399
6,979
1999
1999
1999
1999
2002
2002
2002
2002
2004
2004
2001
1999
1999
2009
2009
2007
1999
2006
2007
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
Table of Contents
Schedule III—Real Estate and Accumulated Depreciation (Continued)
iStar Inc.
As of December 31, 2017
($ in thousands)
Location
Encumbrances
Land
Building and
Improvements
Initial Cost to Company
Cost
Capitalized
Subsequent to
Acquisition(2)
Gross Amount Carried
at Close of Period
Land
Building and
Improvements
Total
Accumulated
Depreciation
Date
Acquired
Miami, Florida
Miami, Florida
IFL004
IFL005
Atlanta, Georgia
IGA001
Bristol, Indiana
IIN001
— (1)
— (1)
12,635
(1)
— (1)
IMA001
17,384
(1)
— (1)
— (1)
20,161
12,545
(1)
(1)
La Porte, Texas
ITX004
IVA001
13,531
(1)
3,048
1,612
2,791
462
7,439
598
6,705
8,368
1,631
2,619
8,676
4,586
24,637
9,224
21,774
9,814
17,690
15,376
27,858
28,481
—
(1,408)
349
—
10,979
1
—
21,141
(416)
142
3,048
1,241
2,791
462
7,439
598
6,225
8,368
1,631
2,619
8,676
3,549
24,986
9,224
11,724
4,790
27,777
9,686
32,753
40,192
9,815
10,413
18,170
24,395
36,517
27,442
44,885
29,073
28,623
31,242
$
107,528
$
58,134
$
230,522
$
56,447
$
57,283
$
287,820
$
345,103
$
—
—
1,400
96,700
—
—
—
—
— (1)
28,464
2,836
(21,064)
—
—
—
—
—
—
2,382
87,300
68,155
8,921
84,100
59,100
—
—
—
—
—
—
1,400
96,700
7,400
2,382
—
(9,963)
77,337
(25,797)
42,358
—
8,921
44,251
128,351
—
59,100
119
—
—
1,400
96,700
2,836
10,236
2,836
—
—
—
—
—
—
2,382
77,337
42,358
8,921
128,351
59,100
—
—
—
—
—
—
Everett,
Massachusetts
Montague,
Michigan
Little Falls,
Minnesota
Elizabeth, New
Jersey
Chesapeake,
Virginia
Subtotal
LAND:
Scottsdale,
Arizona
Whittmann,
Arizona
Mammoth Lakes,
California
Mammoth,
California
Riverside,
California
San Jose,
California
San Jose,
California
San Pedro,
California
IMI001
IMN002
INJ001
LAZ003
LAZ001
LCA002
LCA007
LCA003
LCA004
LCA009
LCA005
Santa Clarita
Valley, California
LCA006
3,940
1,106
6,361
3,180
7,847
3,419
5,865
8,824
6,929
7,285
80,225
—
—
Depreciable
Life
(Years)
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
0
0
0
0
0
0
0
0
0
1999
1999
2007
2007
2007
2007
2005
2007
2007
2007
2011
2010
2010
2007
2009
2000
2017
2010
2010
Table of Contents
Location
Fort Myers,
Florida
Fort Myers,
Florida
Indiantown,
Florida
LFA001
LFA007
LFA002
Miami, Florida
LFA006
Naples, Florida
LFA003
St. Lucie, Florida
LFA004
St. Lucie, Florida
LFA008
Stuart, Florida
LFA005
Savannah,
Georgia
LGA002
Chicago, Illinois
LIL001
Asbury Park, New
Jersey
Asbury Park, New
Jersey
LNJ001
LNJ002
Brooklyn, New
York
Brooklyn, New
York
LNY002
LNY003
Long Beach, New
York
LNY001
Warrington,
Pennsylvania
Chesterfield
County, Virginia
Chesterfield
County, Virginia
Ranson, West
Virginia
Subtotal
LPA001
LVA001
LVA002
LWV001
$
ENTERTAINMENT:
Decatur, Alabama
EAL001
Schedule III—Real Estate and Accumulated Depreciation (Continued)
iStar Inc.
As of December 31, 2017
($ in thousands)
Initial Cost to Company
Encumbrances
Land
Building and
Improvements
Cost
Capitalized
Subsequent to
Acquisition(2)
Gross Amount Carried
at Close of Period
Land
Building and
Improvements
Total
Accumulated
Depreciation
Date
Acquired
Depreciable
Life
(Years)
— (1)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
7,600
5,883
8,100
9,300
26,600
3,540
6,900
9,300
1,400
31,500
43,300
3,992
58,900
3,277
52,461
1,460
72,138
3,291
9,083
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
178
—
(252)
33,162
—
—
—
—
—
7,600
5,883
8,100
9,080
26,600
3,540
6,900
9,300
1,400
31,500
39,032
82,332
54,894
58,886
(13,460)
45,440
—
178
—
(32)
33,162
—
—
—
—
—
—
—
—
7,600
6,061
8,100
9,048
59,762
3,540
6,900
9,300
1,400
31,500
82,332
58,886
45,440
24,033
3,277
24,033
27,310
2,525
52,461
2,525
54,986
704
1,460
704
2,164
—
—
—
—
—
—
—
—
—
—
747
—
—
814
—
—
42,187
114,325
—
—
3,291
9,083
—
—
—
114,325
3,534
3,291
9,083
—
—
2009
2014
2009
2012
2010
2013
2017
2010
2013
2016
2009
2009
2011
2013
2009
2011
2009
2009
2016
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
$
794,547
$
2,836
$
170,430
$
904,407
$
63,406
$
967,813
$
7,931
277
359
(6)
277
353
630
118
2004
40.0
120
Table of Contents
Location
Huntsville,
Alabama
EAL002
Chandler, Arizona
EAZ001
Chandler, Arizona
EAZ002
Mesa, Arizona
EAZ004
Peoria, Arizona
EAZ005
Phoenix, Arizona
EAZ006
Phoenix, Arizona
EAZ007
Phoenix, Arizona
EAZ008
Tempe, Arizona
EAZ009
Alameda,
California
Bakersfield,
California
Bakersfield,
California
Milpitas,
California
Riverside,
California
Rocklin,
California
Sacramento,
California
San Bernardino,
California
San Diego,
California
San Marcos,
California
Thousand Oaks,
California
Torrance,
California
ECA001
ECA002
ECA003
ECA005
ECA006
ECA007
ECA008
ECA009
ECA010
ECA011
ECA013
ECA014
Schedule III—Real Estate and Accumulated Depreciation (Continued)
iStar Inc.
As of December 31, 2017
($ in thousands)
Initial Cost to Company
Encumbrances
Land
Building and
Improvements
Cost
Capitalized
Subsequent to
Acquisition(2)
Gross Amount Carried
at Close of Period
Land
Building and
Improvements
Total
Accumulated
Depreciation
Date
Acquired
Depreciable
Life
(Years)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
— (1)
—
— (1)
—
319
793
521
630
590
476
654
666
460
414
1,027
673
815
764
616
845
862
596
1,097
1,421
434
332
676
720
574
392
358
—
852
—
659
560
429
876
932
743
508
464
18,000
1,101
1,953
852
(25)
(62)
(10)
(49)
(46)
(10)
(14)
(14)
(36)
(86)
(33)
(26)
(53)
(56)
(12)
(8)
(7)
—
(18)
25,772
(14)
121
319
793
521
630
590
476
654
666
460
389
965
663
766
718
606
831
848
560
1,097
1,335
708
1,758
1,184
1,396
1,308
1,082
1,485
1,514
1,020
2,432
961
735
1,499
1,596
1,305
892
815
527
403
823
876
731
500
457
18,000
18,000
1,083
1,935
27,725
27,725
838
1,497
434
332
676
720
574
392
358
—
852
—
659
124
307
222
244
229
203
279
284
178
425
168
129
262
279
245
167
153
6,032
363
6,121
281
2004
2004
2004
2004
2004
2004
2004
2004
2004
2004
2004
2004
2004
2004
2004
2004
2004
2003
2004
2008
2004
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
Table of Contents
Schedule III—Real Estate and Accumulated Depreciation (Continued)
iStar Inc.
As of December 31, 2017
($ in thousands)
Location
Encumbrances
Land
Building and
Improvements
Initial Cost to Company
Cost
Capitalized
Subsequent to
Acquisition(2)
Gross Amount Carried
at Close of Period
Land
Building and
Improvements
Total
Accumulated
Depreciation
Date
Acquired
Depreciable
Life
(Years)
Visalia, California
ECA015
W. Los Angeles,
California
ECA004
Aurora, Colorado
ECO002
Denver, Colorado
ECO003
Englewood,
Colorado
Littleton,
Colorado
Milford,
Connecticut
Wilmington,
Delaware
Boca Raton,
Florida
Boynton Beach,
Florida
Boynton Beach,
Florida
Bradenton,
Florida
Davie, Florida
ECO004
ECO006
ECT001
EDE001
EFL001
EFL002
EFL003
EFL004
EFL006
Lakeland, Florida
EFL008
Leesburg, Florida
EFL009
Ocala, Florida
Ocala, Florida
Orange City,
Florida
Pembroke Pines,
Florida
EFL011
EFL012
EFL014
EFL016
Sarasota, Florida
EFL018
—
—
—
—
—
—
—
—
— (1)
—
— (1)
—
—
—
—
—
—
—
—
—
562
1,642
640
729
536
901
1,097
1,076
—
412
6,550
1,067
401
282
352
437
532
486
497
643
729
2,124
827
944
694
1,165
1,420
1,390
41,809
531
—
1,382
520
364
455
567
689
629
643
833
562
1,642
640
729
536
901
1,097
1,076
—
412
6,533
1,067
401
282
352
437
532
486
497
643
(44)
(35)
(49)
(57)
(11)
(19)
(23)
(80)
—
(7)
17,118
(83)
(31)
(6)
(28)
(34)
(42)
(38)
(10)
(14)
122
685
2,089
778
887
683
1,146
1,397
1,310
1,247
3,731
1,418
1,616
1,219
2,047
2,494
2,386
218
700
248
282
229
384
468
417
41,809
41,809
19,828
524
936
17,135
23,668
1,299
489
358
427
533
647
591
633
819
2,366
890
640
779
970
1,179
1,077
1,130
1,462
175
4,567
414
155
120
136
169
206
188
212
274
2004
2004
2004
2004
2004
2004
2004
2004
2005
2004
2006
2004
2004
2004
2004
2004
2004
2004
2004
2004
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
27.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
Table of Contents
Location
St. Petersburg,
Florida
Schedule III—Real Estate and Accumulated Depreciation (Continued)
iStar Inc.
As of December 31, 2017
($ in thousands)
Initial Cost to Company
Encumbrances
Land
Building and
Improvements
Cost
Capitalized
Subsequent to
Acquisition(2)
Gross Amount Carried
at Close of Period
Land
Building and
Improvements
Total
Accumulated
Depreciation
Date
Acquired
Depreciable
Life
(Years)
EFL019
— (1)
4,200
18,272
Tampa, Florida
EFL020
Venice, Florida
EFL022
W. Palm Beach,
Florida
EFL023
Atlanta, Georgia
EGA001
Conyers, Georgia
EGA003
Marietta, Georgia
EGA004
Savannah,
Georgia
Woodstock,
Georgia
EGA005
EGA007
Chicago, Illinois
EIL003
Lyons, Illinois
EIL004
Naperville,
Illinois
Springfield,
Illinois
Evansville,
Indiana
Baltimore,
Maryland
Baltimore,
Maryland
Baltimore,
Maryland
Gaithersburg,
Maryland
Hyattsville,
Maryland
EIL006
EIL005
EIN001
EMD001
EMD002
EMD003
EMD004
EMD006
Laurel, Maryland
EMD007
Linthicum,
Maryland
EMD008
—
—
— (1)
—
—
—
—
—
— (1)
—
—
—
—
—
—
—
—
—
—
—
551
507
—
510
474
581
718
502
8,803
433
1,798
431
542
428
575
362
884
399
649
366
714
656
19,337
660
613
752
930
651
57
560
2,894
557
701
554
745
468
1,145
518
839
473
4,200
551
507
—
510
474
581
718
502
8,803
433
1,798
431
542
428
575
362
884
399
649
366
—
(12)
(40)
—
(11)
(37)
(46)
(15)
(11)
30,479
(10)
530
(9)
(11)
(34)
(45)
(7)
(19)
(9)
(14)
(7)
123
18,272
702
616
19,337
649
576
706
915
640
30,536
550
3,424
548
690
520
700
461
1,126
509
825
466
22,472
1,253
1,123
19,337
1,159
1,050
1,287
1,633
1,142
39,339
983
5,222
979
1,232
948
1,275
823
2,010
908
1,474
832
5,868
235
196
6,209
217
183
225
306
214
7,875
184
979
184
231
166
223
154
377
170
276
156
2005
2004
2004
2005
2004
2004
2004
2004
2004
2006
2004
2017
2004
2004
2004
2004
2004
2004
2004
2004
2004
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
Table of Contents
Location
Pikesville,
Maryland
Timonium,
Maryland
Towson,
Maryland
Auburn,
Massachusetts
Chicopee,
Massachusetts
Somerset,
Massachusetts
Grand Rapids,
Michigan
Grand Rapids,
Michigan
Roseville,
Michigan
Burnsville,
Minnesota
Rochester,
Minnesota
Columbia,
Missouri
North Kansas
City, Missouri
Aberdeen, New
Jersey
Wallington, New
Jersey
Centereach, New
York
Cheektowaga,
New York
Dewpew, New
York
Melville, New
York
EMD009
EMD011
EMD012
EMA001
EMA002
EMA003
EMI003
EMI006
EMI005
EMN002
EMN004
EMO001
EMO004
ENJ001
ENJ002
ENY002
ENY004
ENY005
ENY007
Schedule III—Real Estate and Accumulated Depreciation (Continued)
iStar Inc.
As of December 31, 2017
($ in thousands)
Initial Cost to Company
Encumbrances
Land
Building and
Improvements
Cost
Capitalized
Subsequent to
Acquisition(2)
Gross Amount Carried
at Close of Period
Land
Building and
Improvements
Total
Accumulated
Depreciation
Date
Acquired
Depreciable
Life
(Years)
—
—
—
—
—
—
—
—
—
— (1)
— (1)
—
—
—
—
—
—
—
—
398
1,126
642
523
548
519
554
860
533
2,962
2,437
334
878
1,560
830
442
385
350
494
516
1,458
788
678
711
672
718
543
691
—
8,715
432
1,139
2,019
1,075
571
499
453
640
398
1,126
642
523
548
519
554
860
533
2,962
2,437
334
878
1,560
830
442
385
350
494
(8)
(88)
454
(12)
(43)
(11)
(43)
670
(12)
17,164
2,098
(26)
(69)
(33)
(65)
(34)
(8)
(28)
(39)
124
508
1,370
1,242
666
668
661
675
1,213
679
906
2,496
1,884
1,189
1,216
1,180
1,229
2,073
1,212
17,164
20,126
10,813
13,250
406
1,070
1,986
1,010
537
491
425
601
740
1,948
3,546
1,840
979
876
775
1,095
170
436
329
223
213
221
215
362
227
5,039
3,569
129
341
665
322
171
164
136
191
2004
2004
2017
2004
2004
2004
2004
2017
2004
2006
2006
2004
2004
2004
2004
2004
2004
2004
2004
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
Table of Contents
Location
Rochester, New
York
Rochester, New
York
Rochester, New
York
Sayville, New
York
ENY006
ENY008
ENY009
ENY010
Shirley, New York ENY011
Smithtown, New
York
Syosset, New
York
Syracuse, New
York
Wantagh, New
York
Webster, New
York
West Babylon,
New York
White Plains,
New York
Asheville, North
Carolina
Cary, North
Carolina
Charlotte, North
Carolina
Charlotte, North
Carolina
Durham, North
Carolina
Goldsboro, North
Carolina
ENY012
ENY013
ENY014
ENY015
ENY016
ENY017
ENY018
ENC001
ENC002
ENC003
ENC004
ENC005
ENC006
Greensboro, North
Carolina
ENC007
Schedule III—Real Estate and Accumulated Depreciation (Continued)
iStar Inc.
As of December 31, 2017
($ in thousands)
Initial Cost to Company
Encumbrances
Land
Building and
Improvements
Cost
Capitalized
Subsequent to
Acquisition(2)
Gross Amount Carried
at Close of Period
Land
Building and
Improvements
Total
Accumulated
Depreciation
Date
Acquired
Depreciable
Life
(Years)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
326
320
399
959
587
521
711
558
747
683
1,492
1,471
397
476
410
402
948
259
349
421
414
516
1,240
761
675
920
723
967
885
1,933
1,904
513
615
530
520
1,227
336
452
326
320
399
959
587
521
711
558
747
683
1,492
1,471
397
476
410
402
948
259
349
(25)
(7)
(8)
(20)
(46)
(11)
(56)
(12)
(58)
(15)
(117)
(31)
(31)
(10)
(8)
(9)
(75)
(6)
(28)
125
396
407
508
1,220
715
664
864
711
909
870
1,816
1,873
482
605
522
511
722
727
907
2,179
1,302
1,185
1,575
1,269
1,656
1,553
3,308
3,344
879
1,081
932
913
1,152
2,100
330
424
589
773
126
136
170
409
228
222
275
238
289
291
578
627
154
203
175
171
367
111
135
2004
2004
2004
2004
2004
2004
2004
2004
2004
2004
2004
2004
2004
2004
2004
2004
2004
2004
2004
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
Table of Contents
Location
Greenville, North
Carolina
Hickory, North
Carolina
Matthews, North
Carolina
Raleigh, North
Carolina
Winston-Salem,
North Carolina
Canton, Ohio
ENC008
ENC009
ENC010
ENC011
ENC012
EOH001
Columbus, Ohio
EOH002
Grove City, Ohio
EOH003
Medina, Ohio
EOH004
Edmond,
Oklahoma
EOK001
Tulsa, Oklahoma
EOK002
Salem, Oregon
EOR002
Boothwyn,
Pennsylvania
Croydon,
Pennsylvania
Feasterville,
Pennsylvania
Pittsburgh,
Pennsylvania
Pittsburgh,
Pennsylvania
San Juan, Puerto
Rico
Cranston, Rhode
Island
Greenville, South
Carolina
EPA001
EPA002
EPA005
EPA003
EPA004
EPR001
ERI001
ESC002
Addison, Texas
ETX001
Arlington, Texas
ETX002
Schedule III—Real Estate and Accumulated Depreciation (Continued)
iStar Inc.
As of December 31, 2017
($ in thousands)
Initial Cost to Company
Encumbrances
Land
Building and
Improvements
Cost
Capitalized
Subsequent to
Acquisition(2)
Gross Amount Carried
at Close of Period
Land
Building and
Improvements
Total
Accumulated
Depreciation
Date
Acquired
Depreciable
Life
(Years)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
640
409
965
475
494
434
967
281
393
431
954
393
407
421
828
531
1,249
615
638
562
1,252
365
508
557
1,235
508
527
544
(50)
(32)
(21)
(37)
(10)
(34)
(20)
(6)
(30)
(9)
(75)
(8)
(32)
(33)
640
409
965
475
494
434
967
281
393
431
954
393
407
421
778
499
1,228
578
628
528
1,232
359
478
548
1,160
500
495
511
1,418
908
2,193
1,053
1,122
962
2,199
640
871
979
2,114
893
902
932
2,340
2,824
211
2,340
3,035
5,375
409
407
950
850
332
1,045
593
528
527
1,230
1,100
429
1,353
767
409
407
950
850
332
1,045
593
(8)
(8)
(74)
(18)
(26)
(82)
(13)
126
520
519
1,156
1,082
403
1,271
754
929
926
2,106
1,932
735
2,316
1,347
248
159
411
184
210
168
412
120
152
184
370
167
158
163
940
174
174
368
362
129
405
253
2004
2004
2004
2004
2004
2004
2004
2004
2004
2004
2004
2004
2004
2004
2017
2004
2004
2004
2004
2004
2004
2004
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
Table of Contents
Schedule III—Real Estate and Accumulated Depreciation (Continued)
iStar Inc.
As of December 31, 2017
($ in thousands)
Location
Encumbrances
Land
Building and
Improvements
Initial Cost to Company
Cost
Capitalized
Subsequent to
Acquisition(2)
Gross Amount Carried
at Close of Period
Land
Building and
Improvements
Total
Accumulated
Depreciation
Date
Acquired
Conroe, Texas
ETX004
Corpus Christi,
Texas
Desota, Texas
Euless, Texas
ETX005
ETX006
ETX007
Garland, Texas
ETX008
Houston, Texas
ETX009
Houston, Texas
ETX010
Houston, Texas
ETX011
Houston, Texas
ETX013
Humble, Texas
ETX014
Lewisville, Texas
ETX017
Midland, Texas
ETX023
Richardson, Texas
ETX018
San Antonio,
Texas
ETX019
Stafford, Texas
ETX020
Waco, Texas
ETX021
Webster, Texas
ETX022
Centreville,
Virginia
Chesapeake,
Virginia
Chesapeake,
Virginia
Fredericksburg,
Virginia
EVA001
EVA002
EVA003
EVA004
Grafton, Virginia
EVA005
Lynchburg,
Virginia
Mechanicsville,
Virginia
EVA006
EVA007
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
838
528
480
975
1,108
425
518
758
375
438
561
2,360
753
521
634
379
592
1,134
845
884
953
487
425
1,151
1,083
682
622
1,261
1,433
549
671
981
485
567
726
1,082
976
675
821
491
766
1,467
1,094
1,145
1,233
632
550
1,490
838
528
480
975
1,108
425
518
758
375
438
561
2,360
753
521
634
379
592
1,134
845
884
953
487
425
1,151
(17)
(11)
(10)
(21)
(23)
(89)
(40)
(59)
(8)
(9)
(44)
2,023
(59)
(41)
(13)
(8)
(46)
(89)
(66)
(19)
(21)
(39)
(9)
(24)
127
1,066
671
612
1,240
1,410
460
631
922
477
558
682
3,105
917
634
808
483
720
1,378
1,028
1,126
1,212
593
541
1,466
1,904
1,199
1,092
2,215
2,518
885
1,149
1,680
852
996
1,243
5,465
1,670
1,155
1,442
862
1,312
2,512
1,873
2,010
2,165
1,080
966
2,617
357
225
205
415
472
155
201
294
160
187
217
955
292
202
270
162
229
439
327
377
406
189
181
491
2004
2004
2004
2004
2004
2004
2004
2004
2004
2004
2004
2017
2004
2004
2004
2004
2004
2004
2004
2004
2004
2004
2004
2004
Depreciable
Life
(Years)
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
Table of Contents
Schedule III—Real Estate and Accumulated Depreciation (Continued)
iStar Inc.
As of December 31, 2017
($ in thousands)
Location
Encumbrances
Land
Building and
Improvements
Initial Cost to Company
Cost
Capitalized
Subsequent to
Acquisition(2)
Gross Amount Carried
at Close of Period
Land
Building and
Improvements
Total
Accumulated
Depreciation
Date
Acquired
Norfolk, Virginia
EVA008
Richmond,
Virginia
Richmond,
Virginia
Virginia Beach,
Virginia
Williamsburg,
Virginia
EVA010
EVA011
EVA012
EVA013
—
—
—
—
—
546
819
958
788
554
EWA001
— (1)
1,500
EWI001
EWI004
$
—
—
—
521
793
707
1,061
1,240
1,020
716
6,500
673
1,025
(42)
(64)
(75)
(17)
(12)
—
(39)
(17)
546
819
958
788
554
1,500
521
793
665
997
1,165
1,003
704
6,500
634
1,008
1,211
1,816
2,123
1,791
1,258
8,000
1,155
1,801
212
317
371
336
236
2,681
202
338
2004
2004
2004
2004
2004
2003
2004
2004
$
121,616
$
235,592
$
92,237
$
121,599
$
327,846
$
449,445
$
106,871
Depreciable
Life
(Years)
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
RAZ003
— (1)
2,625
2,849
2,625
7,724
10,349
1,655
2009
40.0
— (1)
— (1)
— (1)
— (1)
—
—
— (1)
— (1)
— (1)
2,184
2,657
2,631
3,950
3,393
14,934
—
1,733
731
4,875
4,056
2,666
279
—
21,155
29,675
336
—
(1,588)
(309)
5,195
10,285
(9,091)
27,871
1,830
2,184
2,657
2,607
3,908
3,393
14,934
—
8,728
1,705
6,073
699
711
128
2,468
2,357
4,652
5,014
5,498
8,105
10,327
14,235
12,064
57,546
2,166
8,756
6,792
15,457
72,480
2,166
10,461
7,503
372
601
1,447
2,899
3,223
7,817
1,056
2,580
2,286
2009
2011
2006
2005
2009
2012
2010
2005
2005
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
Quincy,
Washington
Milwaukee,
Wisconsin
Wauwatosa,
Wisconsin
Subtotal
RETAIL:
Scottsdale,
Arizona
Scottsdale,
Arizona
Scottsdale,
Arizona
RAZ004
RAZ005
Colorado Springs,
Colorado
RCO001
St. Augustine,
Florida
RFL003
Honolulu, Hawaii
RHI001
Chicago, Illinois
RIL002
Chicago, Illinois
RIL001
Albuquerque,
New Mexico
Hamburg, New
York
RNM001
RNY001
Table of Contents
Schedule III—Real Estate and Accumulated Depreciation (Continued)
iStar Inc.
As of December 31, 2017
($ in thousands)
Location
Encumbrances
Land
Building and
Improvements
Initial Cost to Company
Cost
Capitalized
Subsequent to
Acquisition(2)
Gross Amount Carried
at Close of Period
Land
Building and
Improvements
Total
Accumulated
Depreciation
Date
Acquired
Depreciable
Life
(Years)
Columbia, South
Carolina
RSC001
Anthony, Texas
RTX001
Draper, Utah
RUT001
Ashburn, Virginia
RVA001
Subtotal
HOTEL:
—
— (1)
— (1)
— (1)
2,126
3,538
3,502
4,720
948
4,215
—
16,711
(723)
(187)
5,975
(174)
1,337
3,514
3,502
4,720
1,014
4,052
5,975
2,351
7,566
9,477
16,537
21,257
$
—
$
48,724
$
90,989
$
51,360
$
47,797
$
143,276
$
191,073
$
Atlanta, Georgia
HGA001
— (1)
6,378
Honolulu, Hawaii
HHI001
Lihue, Hawaii
HHI002
Asbury Park, New
Jersey
HNJ001
—
—
—
17,996
3,000
3,815
25,514
17,996
12,000
40,194
4,465
(31,160)
5,986
3,064
6,378
3,419
3,000
3,815
29,979
36,357
1,413
17,986
4,832
20,986
43,258
47,073
Subtotal
$
—
$
31,189
$
95,704
$
(17,645) $
16,612
$
92,636
$
109,248
$
APARTMENT/RESIDENTIAL:
Mammoth,
California
ACA002
Atlanta, Georgia
AGA001
Jersey City, New
Jersey
Philadelphia,
Pennsylvania
Seattle,
Washington
Subtotal
MIXED USE:
ANJ001
APA002
AWA002
—
—
—
—
—
10,078
2,963
36,405
15,890
2,342
29,510
44,478
40,312
11,850
(49,631)
6,912
64,719
(100,639)
152
4,345
174
607
17,380
759
21,725
311
485
(30,922)
15,890
(1,412)
14,478
$
—
$
67,678
$
190,869
$
(210,959) $
22,903
$
24,685
$
(36,679)
2,342
7,799
10,141
47,588
$
269
1,193
1,659
2,021
29,078
6,554
4,531
3,061
2,732
16,878
—
—
—
—
—
—
Glendale, Arizona
MAZ002
— (1)
10,182
52,544
45,144
10,182
97,688
107,870
16,099
Riverside,
California
MCA001
Key West, Florida
MFL002
Naples, Florida
MFL003
Tampa, Florida
MFL004
—
—
—
—
5,869
18,229
2,507
4,201
629
20,899
8,155
14,652
2
5,869
631
6,500
18,229
2,507
4,201
23,398
9,284
15,853
41,627
11,791
20,054
2,499
1,129
1,201
129
451
4,164
1,824
2,352
2007
2005
2005
2011
2010
2009
2009
2016
2007
2010
2009
2012
2009
2011
2010
2014
2014
2014
40.0
40.0
40.0
40.0
40.0
40.0
40.0
40.0
0.0
0.0
0.0
0.0
0.0
40.0
40.0
40.0
40.0
40.0
Table of Contents
Schedule III—Real Estate and Accumulated Depreciation (Continued)
iStar Inc.
As of December 31, 2017
($ in thousands)
Location
Encumbrances
Land
Building and
Improvements
Initial Cost to Company
Cost
Capitalized
Subsequent to
Acquisition(2)
Gross Amount Carried
at Close of Period
Land
Building and
Improvements
Total
Accumulated
Depreciation
Date
Acquired
Depreciable
Life
(Years)
Atlanta, Georgia
MGA001
Subtotal
Total
— (1)
4,480
—
$
45,468
208,491
$ 1,189,030
17,916
114,795
1,202,540
$
$
$
$
(16,564)
4,480
33,411
$
45,468
185,625
$ 1,238,750
$
$
1,352
148,206
1,338,445
$
$
$
$
5,832
193,674
$
1,339
26,229
2,577,195 (4) $
366,265 (5)
2010
40.0
_______________________________________________________________________________
(1)
(2)
(3)
(4)
(5)
Consists of properties pledged as collateral under the Company's secured credit facilities with a carrying value of $611.3 million.
Includes impairments and unit sales.
These properties have land improvements which have depreciable lives of 15 to 20 years.
The aggregate cost for Federal income tax purposes was approximately $2.96 billion at December 31, 2017.
Includes $8.3 million and $10.5 million relating to accumulated depreciation for land and development assets and real estate assets held for sale, respectively, as of December 31, 2017.
130
Table of Contents
Schedule III—Real Estate and Accumulated Depreciation (Continued)
iStar Inc.
As of December 31, 2017
($ in thousands)
The following table reconciles real estate from January 1, 2015 to December 31, 2017:
Balance at January 1
Improvements and additions
Acquisitions through foreclosure
Other acquisitions
Dispositions
Other
Impairments
2017
2016
2015
$
2,997,351
$
3,246,469
$
3,448,934
167,676
—
5,164
(561,431)
—
(31,565)
2,577,195
$
169,999
40,583
30,618
(484,810)
4,035
(9,543)
2,997,351
$
183,269
14,505
—
(431,928)
41,869
(10,180)
3,246,469
Balance at December 31
$
The following table reconciles accumulated depreciation from January 1, 2015 to December 31, 2017:
Balance at January 1
Additions
Dispositions
Balance at December 31
2017
2016
(426,982) $
(44,270)
104,987
(366,265) $
(467,616) $
(48,761)
89,395
(426,982) $
2015
(482,130)
(57,393)
71,907
(467,616)
$
$
131
Table of Contents
iStar Inc.
Schedule IV—Mortgage Loans on Real Estate
As of December 31, 2017
($ in thousands)
Type of Loan/Borrower
Underlying Property Type
Contractual
Interest
Accrual
Rates
Contractual
Interest
Payment
Rates
Effective
Maturity
Dates
Periodic
Payment
Terms(1)
Prior
Liens
Face
Amount
of
Mortgages
Carrying
Amount
of
Mortgages(2)(3)
Senior Mortgages:
Borrower A
Borrower B
Borrower C
Borrower D(4)
Borrower E(5)
Borrower F(6)
Apartment/Residential
Mixed Use/Mixed Collateral
Apartment/Residential
Hotel
Apartment/Residential
Office
LIBOR + 5.25%
LIBOR + 5.15%
LIBOR + 8%
LIBOR + 6%
LIBOR + 7.25%
LIBOR + 5.88%
LIBOR + 5.25%
LIBOR + 5.15%
LIBOR + 8%
LIBOR + 6%
LIBOR + 7.25%
LIBOR + 5.88%
July 2019
April 2018
July 2018
January 2019
August 2018
December 2019
IO $
— $
200,000
$
Borrower G
Apartment/Residential
8.00%
8.00%
January 2024
Senior mortgages individually
<3%
Apartment/Residential, Retail,
Mixed Use/Mixed Collateral,
Office, Hotel, Other
Fixed: 5% to 9.68%
Variable: LIBOR + 3%
to LIBOR + 12.35%
Fixed: 6% to 9.68%
Variable: LIBOR + 3%
to LIBOR + 12.35%
2018 to 2024
Subordinate Mortgages:
Subordinate mortgages
individually <3%
Total mortgages
Hotel
Fixed: 6.8% to 14.0%
Fixed: 6.8% to 14%
2019 to 2057
IO = Interest only.
_______________________________________________________________________________
(1)
(2) Amounts are presented net of asset-specific reserves of $48.5 million on impaired loans. Impairment is measured using the estimated fair value of collateral, less costs to sell.
(3)
(4) As of December 31, 2017, included a LIBOR interest rate floor of 0.18%.
(5) As of December 31, 2017, included a LIBOR interest rate floor of 0.42%.
(6) As of December 31, 2017, included a LIBOR interest rate floor of 0.25%.
The carrying amount of mortgages approximated the federal income tax basis.
132
199,000
107,202
93,596
86,714
39,748
30,308
107,196
93,782
86,000
39,729
30,338
IO
IO
IO
IO
IO
IO
—
—
—
—
—
—
25,424
25,201
210,457
792,926
160,865
742,634
9,495
9,495
9,495
9,495
$
802,421
$
752,129
Table of Contents
iStar Inc.
Schedule IV—Mortgage Loans on Real Estate (Continued)
As of December 31, 2017
($ in thousands)
Reconciliation of Mortgage Loans on Real Estate:
The following table reconciles Mortgage Loans on Real Estate from January 1, 2015 to December 31, 2017(1):
Balance at January 1
Additions:
New mortgage loans
Additions under existing mortgage loans
Other(2)
Deductions(3):
Collections of principal
Recovery of (provision for) loan losses
Transfers (to) from real estate and equity investments
Amortization of premium
Balance at December 31
2017
2016
2015
$
915,905
$
934,964
$
726,426
265,966
132,703
23,388
(528,321)
28
(57,505)
(35)
752,129
$
25,893
165,275
30,694
(247,431)
9,747
(3,177)
(60)
915,905
$
237,031
92,887
33,080
(151,464)
(6,186)
3,261
(71)
934,964
$
Balances represent the carrying value of loans, which are net of asset specific reserves.
______________________________________________________________
(1)
(2) Amount includes amortization of discount, deferred interest capitalized and mark-to-market adjustments resulting from changes in foreign exchange rates.
(3) Amounts are presented net of charge-offs of $1.2 million, $10.1 million and $1.0 million for the years ended December 31, 2017, 2016 and 2015, respectively.
133
Table of Contents
Item 9. Changes and Disagreements with Registered Public Accounting Firm on Accounting and Financial Disclosure
Please refer to the Company's Current Report on Form 8-K filed with the SEC on November 28, 2017.
Item 9a. Controls and Procedures
Evaluation of Disclosure Controls and Procedures—The Company has established and maintains disclosure controls and
procedures that are designed to ensure that information required to be disclosed in the Company's Exchange Act reports is recorded,
processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is
accumulated and communicated to the Company's management, including its Chief Executive Officer and Chief Financial Officer,
as appropriate, to allow timely decisions regarding required disclosure. The Company has formed a disclosure committee that is
responsible for considering the materiality of information and determining the disclosure obligations of the Company on a timely
basis. Both the Chief Executive Officer and the Chief Financial Officer are members of the disclosure committee.
Based upon their evaluation as of December 31, 2017, the Chief Executive Officer and Chief Financial Officer concluded
that the Company's disclosure controls and procedures (as such term is defined in Rules 13a-15(e) under the Securities and Exchange
Act of 1934, as amended (the "Exchange Act")) are effective.
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, 2017.
The Company's internal control over financial reporting as of December 31, 2017, has been audited by
PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears on page 45.
Changes in Internal Controls Over Financial Reporting—There have been no changes during the last fiscal quarter in
the Company's internal controls identified in connection with the evaluation required by paragraph (d) of Exchange Act
Rules 13a-15 or 15d-15 that have materially affected, or are reasonably likely to materially affect, the Company's internal control
over financial reporting.
Item 9b. Other Information
None.
134
Table of Contents
PART III
Item 10. Directors, Executive Officers and Corporate Governance of the Registrant
Portions of the Company's definitive proxy statement for the 2018 annual meeting of shareholders to be filed within 120 days
after the close of the Company's fiscal year are incorporated herein by reference.
Item 11. Executive Compensation
Portions of the Company's definitive proxy statement for the 2018 annual meeting of shareholders to be filed within 120 days
after the close of the Company's fiscal year are incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Portions of the Company's definitive proxy statement for the 2018 annual meeting of shareholders to be filed within 120 days
after the close of the Company's fiscal year are incorporated herein by reference.
Item 13. Certain Relationships, Related Transactions and Director Independence
Portions of the Company's definitive proxy statement for the 2018 annual meeting of shareholders to be filed within 120 days
after the close of the Company's fiscal year are incorporated herein by reference.
Item 14. Principal Registered Public Accounting Firm Fees and Services
Portions of the Company's definitive proxy statement for the 2018 annual meeting of shareholders to be filed within
120 days after the close of the Company's fiscal year are incorporated herein by reference.
Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K
PART IV
(a) and (c) Financial statements and schedules—see Index to Financial Statements and Schedules included in Item 8.
(b) Exhibits—see index on following page.
INDEX TO EXHIBITS
135
Table of Contents
Exhibit
Number
3.1
3.2
3.6
3.8
3.9
Restated Charter of the Company (including the Articles Supplementary for each Series of the Company's Preferred Stock).(1)
Document Description
Amended and Restated Bylaws of the Company.(2)
Articles Supplementary relating to Series D Preferred Stock.(3)
Articles Supplementary relating to Series G Preferred Stock.(4)
Articles Supplementary relating to Series I Preferred Stock.(5)
3.10
Articles Supplementary relating to Series J Preferred Stock.(6)
4.1
4.3
4.4
4.5
4.6
4.13
4.14
4.16
4.18
4.22
4.23
4.24
4.25
4.26
4.27
4.28
4.29
4.30
4.31
10.2
10.3
10.5
10.6
10.7
10.8
10.9
10.11
Form of 8.00% Series D Cumulative Redeemable Preferred Stock Certificate.(3)
Form of 7.65% Series G Cumulative Redeemable Preferred Stock Certificate.(4)
Form of 7.50% Series I Cumulative Redeemable Preferred Stock Certificate.(5)
Form of 4.50% Series J Cumulative Convertible Perpetual Preferred Stock Certificate.(7)
Form of Stock Certificate for the Company's Common Stock.(8)
Form of Global Note, No. 2-A evidencing 5.00% Senior Notes due 2019 issued on June 13, 2014.(9)
Form of Global Note, No. 2-B evidencing 5.00% Senior Notes due 2019 issued on June 13, 2014.(9)
Base Indenture, dated as of February 5, 2001, between the Company and State Street Bank and Trust Company.(10)
Form of Global Note, No. 1 evidencing 6.50% Senior Notes due 2021 issued on March 29, 2016.(11)
Twenty-Seventh Supplemental Indenture, dated June 13, 2014, governing the 5.00% Senior Notes due 2019.(9)
Twenty-Eighth Supplemental Indenture, dated March 23, 2016, governing the 6.50% Senior Notes due 2021.(11)
Twenty-Ninth Supplemental Indenture, dated as of March 13, 2017, governing the 6.00% Senior Notes Due 2022.(12)
Form of Global Note, No. 1, evidencing 6.00% Senior Notes due 2022.(12)
Thirtieth Supplemental Indenture, dated as of September 20, 2017, governing the 4.625% Senior Notes due 2020.(13)
Form of Global Note, No. 1, evidencing 4.625% Senior Notes due 2020.(13)
Thirty-First Supplemental Indenture, dated as of September 20, 2017, governing the 5.25% Senior Notes due 2022.(13)
Form of Global Note, No. 1, evidencing 5.25% Senior Notes due 2022.(13)
Thirty-Second Supplemental Indenture, dated as of September 20, 2017, governing the 3.125% Senior Notes due 2022.(13)
Form of Global Note, No. 1, evidencing 3.125% Senior Notes due 2022.(13)
iStar Inc. 2009 Long Term Incentive Compensation Plan.(14)
iStar Inc. 2013 Performance Incentive Plan.(14)
Form of Restricted Stock Unit Award Agreement.(15)
Form of Restricted Stock Unit Award Agreement (Performance-Based Vesting).(16)
Form of Award Agreement For Investment Pool.(8)
Amended and Restated Credit Agreement, dated as of June 23, 2016, by the Company, the banks set forth therein and J.P.
Morgan Chase Bank, N.A., as administrative agent, and J.P. Morgan Chase Bank, N.A., Bank Of America, N.A. and Barclays
Bank PLC as joint lead arrangers.(17)
Security Agreement, dated as of June 23, 2016, made by the Company, and the other parties thereto in favor of J.P. Morgan
Chase Bank, N.A., as administrative agent.(17)
Amended and Restated Credit Agreement dated as of September 27, 2017, among the Company, the other parties named therein
and JPMorgan Chase Bank, N.A. as administrative agent.(18)
12.1*
Computation of Ratio of Earnings to fixed charges and Earnings to fixed charges and preferred stock dividends.
14.0
16.1
21.1*
23.1*
23.2*
31.0*
32.0*
99.1*
100*
101
iStar Inc. Code of Conduct.(19)
Letter from PricewaterhouseCoopers, LLP, dated November 28, 2017. (20)
Subsidiaries of the Company.
Consent of PricewaterhouseCoopers LLP.
Consent of Gerson, Preston, Klein, Lips, Eisenberg & Gelber, P.A.
Certifications pursuant to Section 302 of the Sarbanes-Oxley Act.
Certifications pursuant to Section 906 of the Sarbanes-Oxley Act.
Consolidated Financial Statements of Marina Palms, LLC and Subsidiaries for the years ended December 31, 2017, 2016 and
2015
XBRL-related documents
Interactive data file
136
Table of Contents
________________________________________________________________________
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
(11)
(12)
(13)
(14)
(15)
(16)
(17)
(18)
(19)
(20)
Incorporated by reference from the Company's Current Report on Form 8-K filed on December 15, 2016.
Incorporated by reference from the Company's Current Report on Form 8-K filed on October 25, 2013.
Incorporated by reference from the Company's Current Report on Form 8-A filed on July 8, 2003.
Incorporated by reference from the Company's Current Report on Form 8-A filed on December 10, 2003.
Incorporated by reference from the Company's Current Report on Form 8-A filed on February 27, 2004.
Incorporated by reference from the Company's Current Report on Form 8-K filed on March 18, 2013.
Incorporated by reference from the Company's Current Report on Form 8-A filed on March 18, 2013.
Incorporated by reference from the Company's Annual Report on Form 10-K for the year ended December 31, 2014 filed on March 2, 2015.
Incorporated by reference from the Company's Current Report on Form 8-K filed on June 13, 2014.
Incorporated by reference from the Company's Form S-3 Registration Statement filed on February 12, 2001.
Incorporated by reference to the Company's Current Report on Form 8-K filed on March 29, 2016.
Incorporated by reference from the Company's Current Report on Form 8-K filed on March 13, 2017.
Incorporated by reference from the Company's Current Report on Form 8-K filed on September 20, 2017.
Incorporated by reference from the Company's Definitive Proxy Statement filed on April 11, 2014.
Incorporated by reference from the Company's Current Report on Form 8-K filed on January 25, 2007.
Incorporated by reference from the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2008 filed on May 9, 2008.
Incorporated by reference from the Company's Current Report on Form 8-K filed on June 29, 2016.
Incorporated by reference from the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2017 filed on November 2, 2017.
Incorporated by reference from the Company's Annual Report on Form 10-K for the year ended December 31, 2004 filed on March 16, 2005.
Incorporated by reference from the Company's Current Report on Form 8-K filed on November 28, 2017.
* Filed herewith.
**In accordance with Rule 406T of Regulation S-T, the XBRL related information in Exhibit 101 is deemed not filed or part of a registration statement or prospectus
for purposes of sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of section 18 of the Exchange Act of 1934 and otherwise is not
subject to liability under these sections.
137
Table of Contents
Item 16. Form 10-K Summary
None.
138
Table of Contents
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
Date: February 26, 2018
Date: February 26, 2018
iStar Inc.
Registrant
/s/ JAY SUGARMAN
Jay Sugarman
Chairman of the Board of Directors and Chief
Executive Officer (principal executive officer)
iStar Inc.
Registrant
/s/ GEOFFREY G. JERVIS
Geoffrey G. Jervis
Chief Financial Officer (principal financial and
accounting officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the dates indicated.
Date: February 26, 2018
Date: February 26, 2018
Date: February 26, 2018
Date: February 26, 2018
Date: February 26, 2018
Date: February 26, 2018
/s/ JAY SUGARMAN
Jay Sugarman
Chairman of the Board of Directors
Chief Executive Officer
/s/ CLIFFORD DE SOUZA
Clifford De Souza
Director
/s/ ROBERT W. HOLMAN, JR.
Robert W. Holman, Jr.
Director
/s/ ROBIN JOSEPHS
Robin Josephs
Director
/s/ DALE ANNE REISS
Dale Anne Reiss
Director
/s/ BARRY W. RIDINGS
Barry W. Ridings
Director
139
Computation of Ratio of Earnings to Fixed Charges and Earnings to Fixed Charges and Preferred Dividends
($ in thousands, except ratios)
Exhibit 12.1
For the Years Ended December 31,
2017
2016
2015
2014
2013
Earnings:
Pre-tax income from continuing operations before earnings
from equity method investments and other items
Add: Fixed charges as calculated below
Add: Distributions from operations of equity method
investments
Less: Capitalized interest
Total earnings
Fixed charges:
Interest expense
Add: Capitalized interest
Implied interest component on the company's rent
obligations
Fixed charges
$ (54,161) $(110,899) $ (139,564) $(178,293) $ (264,644)
270,872
231,967
205,269
232,037
229,152
42,059
(8,477)
$ 184,690
48,732
(5,809)
$ 161,176
29,999
(5,337)
$ 117,065
80,116
(4,893)
$ 128,967
$
17,252
(2,590)
20,890
$ 195,066
$ 221,398
$ 224,639
$ 224,483
$ 266,225
8,477
5,809
5,337
4,893
2,590
1,726
1,945
1,991
2,661
2,057
$ 205,269
$ 229,152
$ 231,967
$ 232,037
$ 270,872
Preferred dividends
Fixed charges and preferred dividends
Earnings to fixed charges(1)
Earnings to fixed charges and preferred dividends(1)
_______________________________________________________________________________
(1)
$ 270,027
64,758
—
—
51,320
51,320
51,320
49,020
$ 280,472
$ 283,287
$ 283,357
$ 319,892
—
—
—
—
—
—
—
—
For the years ended December 31, 2017, 2016, 2015, 2014 and 2013 earnings were not sufficient to cover fixed charges by $20,579, $67,976, $114,902,
$103,070 and $249,982, respectively, and earnings were not sufficient to cover fixed charges and preferred dividends by $85,337, $119,296, $166,222,
$154,390 and $299,002, respectively.
List of Subsidiaries
100 Elkhorn Road – Sun Valley LLC
100 Riverview Condominium Association Inc.
Subsidiary
1000 South Clark Street Holdings LLC
1000 South Clark Street LLC
1000 South Clark Street Partners LLC
1050 N. El Mirage Road – Avondale LLC
12 Union Street – Westborough LLC
1250 N. El Mirage Road – Avondale LLC
14000 N. Hayden Road – Scottsdale LLC
1515 Dock Street - Tacoma LLC
17093 Biscayne Boulevard – North Miami LLC
1812 North Moore Lender LLC
2021 Lakeside Boulevard – Richardson LLC
210 5th Ave. Venture Urban Renewal LLC
212 Fifth Lender LLC
215 North Michigan Owner LLC
2220 West First Street – Fort Myers LLC
2611 Corporate West Drive Venture LLC
2611 CWD Net Lease I REIT
2901 Kinwest Parkway – Irving LLC
300 Riverview Condominium Association Inc.
3000 Waterview Parkway – Richardson LLC
3150 SW 38th Avenue - Miami LLC
333 Rector Park – River Rose LLC
3376 Peachtree Hotel LLC
3376 Peachtree Hotel Operator LLC
3376 Peachtree Penthouse LLC
3376 Peachtree Residential LLC
3376 Peachtree Retail LLC
3376 Peachtree Road – Atlanta Hotel LL Inc.
3376 Peachtree Road – Atlanta Restaurant LL Inc.
377 East 33rd Investor LLC
38 North Almaden Boulevard Venture LLC
432 Star Lender LLC
4471 Dean Martin Drive – Las Vegas LLC
46831 Lakeview Boulevard – Fremont LLC
6162 S Willow Drive – Englewood LLC
6400 Christie Avenue – Emeryville LLC
6801 Woolridge Road – Moseley LP
6801 Woolridge Road GenPar LLC
7297 North Scottsdale Unit LW105 Inc.
7445 East Chaparral Road - Scottsdale LLC
Exhibit 21.1
State of Formation
Delaware
New Jersey
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
New Jersey
Delaware
Delaware
Delaware
Delaware
Maryland
Delaware
New Jersey
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Georgia
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
99 Shawan Road Joint Venture LLC
Acquest Government Holdings II, LLC
Acquest Government Holdings, L.L.C.
Acquest Holdings FC, LLC
AP at Monroe Urban Renewal LLC
AP at South Grand Urban Renewal LLC
AP Block 146 Developer Urban Renewal, LLC
AP Block 176 Venture Urban Renewal LLC
AP Block 178 Venture LLC
AP Fifteen Property Holdings, L.L.C.
AP Five Property Holdings, L.L.C.
AP Mortgagee LLC
AP Retail Venture LLC
AP Ten Property Holdings, L.L.C.
AP Triangle LLC
AP Wesley Lake LLC
Artesia Development Partners LLC
Asbury Convention Hall Limited Liability Company
Asbury One Liquor License LLC
Asbury Partners, LLC
ASTAR 1360 Greely Chapel Road – Lima LLC
ASTAR ASB AR1, LLC
ASTAR ASB AR2, LLC
ASTAR ASB FL1, LLC
ASTAR ASB FL10, LLC
ASTAR ASB FL2, LLC
ASTAR ASB FL3, LLC
ASTAR ASB FL4, LLC
ASTAR ASB FL5, LLC
ASTAR ASB FL6, LLC
ASTAR ASB FL7, LLC
ASTAR ASB FL8, LLC
ASTAR ASB FL9, LLC
ASTAR ASB GA1, LLC
ASTAR ASB GA2, LLC
ASTAR ASB GA3, LLC
ASTAR ASB Holdings LLC
ASTAR ASB NC1, LLC
ASTAR ASB NC2, LLC
ASTAR ASB NC3, LLC
ASTAR ASB NC4, LLC
ASTAR ASB TX1 GenPar LLC
ASTAR ASB TX1 LimPar LLC
ASTAR ASB TX1 LP
ASTAR ASB VA1, LLC
ASTAR ASB VA2, LLC
Delaware
New York
New York
New York
New Jersey
New Jersey
New Jersey
New Jersey
New Jersey
New Jersey
New Jersey
Delaware
Delaware
New Jersey
Delaware
Delaware
Delaware
New Jersey
New Jersey
New Jersey
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
ASTAR Finance Falcon I LLC
ASTAR Finance Falcon II LLC
ASTAR Finance LLC
ASTAR FRR FL1, LLC
ASTAR FRR TX1 GenPar LLC
ASTAR FRR TX1 LP
ASTAR Pima Road – Scottsdale LLC
ASTAR ROU LA1, LLC
ASTAR Spokane LLC
ASTAR Suncadia LLC
ASTAR Two Notch Columbia LLC
ASTAR UAG AZ1, LLC
ASTAR UAG AZ2, LLC
ASTAR UAG AZ3, LLC
ASTAR UAG FL1, LLC
ASTAR UAG NJ1 LLC
Autostar Investors Partnership LLP
Autostar Realty GP LLC
Autostar Realty Operating Partnership, L.P.
Bath Site LLC
Bedford Joint Venture LLC
Belmont Ridge Development Co. LLC
BF Net Lease I REIT
BF NLA LLC
Bond Portfolio Holdings II LLC
Bond Portfolio Holdings LLC
Bonita Grande 68, LLC
BW Bowling Net Lease I REIT
BW Bowling Properties Canada Inc.
BW Bowling Properties GenPar LLC
BW Bowling Properties LLC
BW Bowling Properties LP
Cajun Fish Holdings, L.L.C.
Campbell Commons – Richardson LLC
Charwell TP LLC
Chicago Square Partners LLC
Chicago STAR LLC
Childs Associates LLC
Coney Childs Lender LLC
Coney Entertainment LLC
Coney Island Holdings LLC
Coyote Center Development, LLC
DT Net Lease I REIT
DT-XCIII-IS, LLC
Entertainment Center Development, LLC
Every Bear Investments LLC
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Maryland
Delaware
Delaware
Delaware
Florida
Maryland
British Columbia
Delaware
Delaware
Delaware
New Jersey
Delaware
New York
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Maryland
Delaware
Delaware
Delaware
Falcon Auto Dealership Loan Trust 2001-1
Falcon Auto Dealership, LLC
Falcon Financial II, LLC
Falcon Franchise Loan Corp.
Falcon Franchise Loan TR Series 2003-1
Florida 2005 Theaters LLC
GFV Shawan Office, LLC
Gold Coast Chicago Acquisition Company LLC
Grand Monarch Partners LLC
Great Oaks MF Fee Owner LLC
Harbor Bay Net Lease I REIT
Harbor Bay NLA LLC
Harko, LLC
Hicksville GL Owner LLC
Highland View Associates LLC
IS CI Bath Member LLC
iStar 100 LLC
iStar 100 Management Inc.
iStar 100 Riverview LLC
iStar 181 Fremont Holdings LLC
iStar 200-300 LLC
iStar 200-300 Management Inc.
iStar 200-300 Riverview LLC
iStar 320 East Warner Lender LLC
iStar 4th & Virginia LLC
iStar 4th & Virginia Manager LLC
iStar 701 TS Holdings LLC
iStar Alpha Structured Products LLC
iStar Artesia Land LLC
iStar Asset Services, Inc.
iStar Automotive Investments LLC
iStar Bishops Gate LLC
iStar Blues LLC
iStar Bowling Centers I LLC
iStar Bowling Centers I LP
iStar Bowling Centers II LLC
iStar Bowling Centers II LP
iStar Bowling Centers PR GenPar LLC
iStar Bowling Centers PR LP
iStar Busco Inc.
iStar Chicago Hotel Lender LLC
iStar Corporate Collateral LLC
iStar CS Emery Bay North LLC
iStar CTL I GenPar, Inc.
iStar CTL I, L.P.
iStar CTL Manager LLC
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Maryland
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
iStar DH Holdings TRS Inc.
iStar Diplomat Drive – Farmers Branch LLC
iStar DMI LLC
iStar DOJ Holdings LLC
iStar Financial Protective Trust
iStar Financial Statutory Trust I
iStar FKEC Holdings LLC
iStar Florida 2015 Cinemas LLC
iStar FM Loans LLC
iStar Garden State Lender LLC
iStar Grand Monarch Investor LLC
iStar Harrisburg Business Trust
iStar Harrisburg GenPar LLC
iStar Harrisburg, L.P.
iStar Henderson Lender LLC
iStar IF III LLC
iStar Land and Development Company Inc.
iStar Lex Lender LLC
iStar Madison LLC
iStar Minnesota LLC
iStar Net Lease I LLC
iStar Net Lease Manager I LLC
iStar Net Lease Member I LLC
iStar Pinnacle Lender LLC
iStar Potomac LLC
iStar Raintree Venture Member LLC
iStar RC Paradise Valley LLC
iStar Real Estate Services, Inc.
iStar Reeder Lender LLC
iStar REO Holdings II TRS LLC
iStar REO Holdings TRS LLC
iStar San Jose, L.L.C.
iStar SLC LLC
iStar SoHo Lender LLC
iStar SPP II LLC
iStar SPP LLC
iStar Standard Lender LLC
iStar Sunnyvale Partners, L.P.
iStar Sunnyvale, LLC
iStar Tara Holdings LLC
iStar Tara Kickers TRS LLC
iStar Tara LLC
iStar WALH Investor TRS LLC
iStar West Walton Lender LLC
iStar West Walton Mezz LLC
Jade Eight Properties LLC
Cayman Islands
Delaware
Delaware
Delaware
Maryland
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
California
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Maryland
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Jersey Star GenPar LLC
Jersey Star LP
Key West Harbour Development, L.L.C.
Key West Marina Investments, L.L.C.
Loft Office Acquisition, LLC
Long Beach Wayfarer LLC
Lysol Limited
Madison Asbury Retail, LLC
MFF NLA LLC
MFF Net Lease I REIT
MF III Albion LLC
MG Apartments Parcel 3 LLC
MN Theaters 2006 LLC
Naples AW Holdco LLC
Naples Harbour Development, L.L.C.
Naples Marina Investments, L.L.C.
NHN Holdco LLC
NHN Venture 2, LLC
Oakton Net Lease I REIT
Oakton NLA LLC
OHA Strategic Credit Fund (Parallel I), L.P.
One Palm Hotel Operator LLC
One Palm LLC
Paramount Bay Owner LLC
Parrot Cay Holdco LLC
Piscataway Road - Clinton MD LLC
Potomac TC Owner LLC
Raintree Venture Owner, LLC
Raintree Venture Partners, LLC
Rattlefish Raw Bar and Grill, LLC
Royal Oaks Lane (Biscayne Landing) – North Miami LLC
Seaside Park LLC
SFI 10 Rittenhouse LLC
SFI Acquest Holdings LLC
SFI Almaden Manager LLC
SFI Artesia LLC
SFI Ballpark Village LLC
SFI Bedford LLC
SFI Belmont LLC
SFI BR Villa Luisa LLC
SFI Bridgeview LLC
SFI Bullseye – Chicago LLC
SFI Cascade Highlands LLC
SFI Chicago Tollway LLC
SFI Coney Island Manager LLC
SFI CWD Venture Manager LLC
Delaware
Delaware
Florida
Florida
Delaware
Delaware
Cyprus
Delaware
Delaware
Maryland
New Jersey
Delaware
Minnesota
Delaware
Florida
Florida
Delaware
Delaware
Maryland
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
West Virginia
Delaware
Delaware
Florida
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
SFI DT Holdings LLC
SFI Eagle Land LLC
SFI Emery Bay Participant LLC
SFI Euro Holdings II LLC
SFI Euro Holdings LLC
SFI Ford City –Chicago LLC
SFI Ginn Investments LLC
SFI Gold Coast Partner LLC
SFI Grand Vista LLC
SFI Harborspire GenPar LLC
SFI Harborspire LimPar LLC
SFI I, LLC
SFI Ilikai 104 LLC
SFI Ilikai GenPar LLC
SFI Ilikai LL Inc.
SFI Ilikai LL Parent Inc.
SFI Ilikai LP
SFI Ilikai Property Owner LLC
SFI Ilikai Retail Owner LLC
SFI Kauai GenPar LLC
SFI Kauai LP
SFI Kauai Operator LLC
SFI Kauai Owner LLC
SFI Key West Harbour Holdings LLC
SFI Key West Marina LLC
SFI Kua 4 Partner LLC
SFI Los Valles LLC
SFI Magnolia Avenue – Riverside LLC
SFI Mammoth Crossing LLC
SFI Mammoth Finance LLC
SFI Mammoth GenPar LLC
SFI Mammoth Owner LP
SFI Marina Investments LLC
SFI Marina Stuart TRS LLC
SFI MG Investor LLC
SFI Mortgage Funding LLC
SFI Naples Harbour Holdings LLC
SFI Naples Marina LLC
SFI Naples Reserve LLC
SFI Net Lease Holdings LLC
SFI One Palm Partner LLC
SFI Palm Tree (St Lucie) LLC
SFI Palm Tree Farms LLC
SFI Penn Holdco Statutory Trust
SFI Penn Properties Statutory Trust
SFI Raintree – Scottsdale LLC
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
SFI Savannah Residential LLC
SFI SMR GenPar LLC
SFI SMR LP
SFI Spring Mountain Ranch Phase 1 LLC
SFI Sugar Mill Investor LLC
SFI Tampa Harbour Holdings LLC
SFI Tampa Marina LLC
SFI Top Ilikai LL Inc.
SFI Top Ilikai Parent LL Inc.
SFI Valley Plaza – North Hollywood LLC
SFI Westgate City Center - Glendale LLC
SFI Winkel Way LLC
SFT I, Inc.
Shawan Net Lease I REIT
Shore Road GenPar LLC
Shore Road – Long Beach LP
Shore Road – Long Beach Superblock LLC
SMR Phase 1 Joint Venture LLC
St. Lucie Palm Tree Sales LLC
STAR 100 Barclay Lender LLC
STAR 540 West 26th Lender LLC
STAR ARGO Lender LLC
STAR Equus McDowell Member LLC
STAR McDowell Venture Partner LLC
State Road 710 – Indiantown LLC
Stone Pony Partners LLC
Sunnyvale GenPar LLC
Talking Partners
Tampa Harbour Development, L.L.C.
Tampa Marina Investments, L.L.C.
TDM Kua 4, LLC
THCF LLC
The Lanes at AP LLC
The New Westgate LLC
TimberStar GP LLC
TimberStar Investors Partnership LLP
TimberStar Operating Partnership, L.P.
TimberStar Selling Party Representative Holdco LLC
TimberStar Southwest Investor LLC
TPRJC Owner LLC
TriNet Essential Facilities XXVII, Inc.
TriNet Sunnyvale Partners, L.P.
TSM I, LLC
TSM II, LLC
Uncommon CCRC Investor LLC
Vector Urban Renewal Associates I, L.P.
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
New Jersey
Delaware
New Jersey
Florida
Florida
Delaware
New Jersey
New Jersey
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
New Jersey
Maryland
Delaware
Delaware
Delaware
Delaware
New Jersey
Westgate CCDEP Investor LLC
Westgate Investments, LLC
Westgate Signage, LLC
Westgate Sports and Entertainment Group, LLC
WG Net Lease I REIT
WG NLA LLC
Sunnyvale GenPar LLC
Talking Partners, LLC
Tampa Harbour Development, L.L.C.
Tampa Marina Investments, L.L.C.
TDM Kua 4, LLC
THCF LLC
The New Westgate LLC
TimberStar Investors Partnership LLP
TimberStar Operating Partnership, L.P.
TimberStar Selling Party Representative Holdco LLC
TimberStar Southwest Investor LLC
TPRJC Owner LLC
TriNet Essential Facilities XXIII, Inc.
TriNet Essential Facilities XXVI, Inc.
TriNet Essential Facilities XXVII, Inc.
TriNet Sunnyvale Partners, L.P.
TSM I, LLC
TSM II, LLC
Uncommon CCRC Investor LLC
Vector Urban Renewal Associates I, L.P.
Westgate Investments, LLC
Westgate Signage, LLC
Westgate Sports and Entertainment Group LLC
WG Net Lease I REIT
WG NLA LLC
Delaware
Delaware
Delaware
Delaware
Maryland
Delaware
Delaware
New Jersey
Florida
Florida
Delaware
New Jersey
Delaware
Delaware
Delaware
Delaware
Delaware
New Jersey
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
New Jersey
Delaware
Delaware
Delaware
Maryland
Delaware
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statements on Form S 3 (No. 333-220353) and
Form S 8 (No. 333-183465) of iStar Inc. of our report dated February 26, 2018 relating to the financial statements, financial
statement schedules and the effectiveness of internal control over financial reporting, which appears in this Form 10 K.
Exhibit 23.1
/s/ PricewaterhouseCoopers LLP
New York, New York
February 26, 2018
CONSENT OF INDEPENDENT AUDITORS
Exhibit 23.2
We hereby consent to the incorporation by reference in the Registration Statements on Form S 3 (No. 333-220353)
and Form S 8 (No. 333-183465) of iStar Inc. of our report dated February 9, 2018 relating to the consolidated financial
statements of Marina Palms, LLC and Subsidiaries, appearing in the Annual Report on Form 10-K of iStar Inc. for the year
ended December 31, 2017.
/s/ Gerson, Preston, Klein, Lips, Eisenberg & Gelber, P.A.
Miami, Florida
February 26, 2018
Exhibit 31.0
I, Jay Sugarman, certify that:
1. I have reviewed this annual report on Form 10-K of iStar Inc.;
CERTIFICATION
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in
all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented
in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined
in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, 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;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report
based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during
the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing
the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report
financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant's internal control over financial reporting.
Date: February 26, 2018
By:
/s/ JAY SUGARMAN
Name:
Title:
Jay Sugarman
Chief Executive Officer
I, Geoffrey G. Jervis, certify that:
1. I have reviewed this annual report on Form 10-K of iStar Inc.;
CERTIFICATION
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in
all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented
in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined
in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, 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;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report
based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during
the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing
the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report
financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant's internal control over financial reporting.
Date: February 26, 2018
By:
/s/ GEOFFREY G. JERVIS
Name: Geoffrey G. Jervis
Title:
Chief Financial Officer (principal
financial and accounting officer)
Certification of Chief Executive Officer
Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002
Exhibit 32.0
The undersigned, the Chief Executive Officer of iStar Inc. (the "Company"), hereby certifies on the date hereof, pursuant to
18 U.S.C. 1350, as adopted pursuant to Section 906 of The Sarbanes-Oxley Act of 2002, that the Annual Report on Form 10-K
for the year ended December 31, 2017 (the "Form 10-K"), filed concurrently herewith by the Company, fully complies with the
requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and that the information contained
in the Form 10-K fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: February 26, 2018
By:
/s/ JAY SUGARMAN
Name:
Title:
Jay Sugarman
Chief Executive Officer
Certification of Chief Financial Officer
Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002
The undersigned, the Chief Financial Officer of iStar Inc. (the "Company"), hereby certifies on the date hereof, pursuant to
18 U.S.C. 1350, as adopted pursuant to Section 906 of The Sarbanes-Oxley Act of 2002, that the Annual Report on Form 10-K
for the year ended December 31, 2017 (the "Form 10-K"), filed concurrently herewith by the Company, fully complies with the
requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and that the information contained
in the Form 10-K fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: February 26, 2018
By:
/s/ GEOFFREY G. JERVIS
Name: Geoffrey G. Jervis
Title:
Chief Financial Officer (principal
financial and accounting officer)
Dale Anne Reiss (1) (3)
Senior Consultant, Global
Real Estate Center
Global & Americas
Director of Real Estate,
Executive Officers
Jay Sugarman
Chairman &
Executive Vice
Presidents
Elisha J. Blechner
Chief Executive Officer
Portfolio Management
Ernst & Young, LLP (Retired)
Marcos Alvarado
Chase S. Curtis, Jr.
Directors and Officers
Directors
Jay Sugarman
Chairman & Chief Executive
Officer, iStar Inc.
Clifford De Souza (1) (3)
Director, iStar Inc.
Robert W. Holman, Jr.(2) (3)
Chairman & Chief Executive
Barry W. Ridings (1) (2)
Vice Chairman of US
Investment Banking
Officer, National Warehouse
Lazard Freres & Co. LLC
Investment Company
Robin Josephs (2) (3)
Lead Director, iStar Inc.
(1) Audit Committee
(2) Compensation Committee
(3) Nominating & Governance Committee
Chief Investment Officer
Credit
Nina B. Matis
Vice Chairman &
Chief Legal Officer
Andrew C. Richardson
President of Land Portfolio &
Interim Chief Financial Officer
Timothy Doherty
Ground Lease Investments
Karl Frey
Development
Barclay G. Jones III
Net Lease Investments
David M. Sotolov
West Coast
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
www.computershare.com
Annual Meeting of
Shareholders
May 16, 2018, 9:00 a.m. ET
Harvard Club of New York City
Jason Fooks
Vice President
35 West 44th Street
New York, NY 10036
Investor Relations & Marketing
1114 Avenue of the Americas
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
Certifications with the NYSE.
New York, NY 10036
Tel: 212.930.9484
Email:
investors@istar.com
iStar Website:
www.istar.com
Corporate Information
Headquarters
330 Saratoga Road #89471
Employees
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
Honolulu, HI 96830
Tel: 808.800.4320
10960 Wilshire Boulevard
Suite 1260
Los Angeles, CA 90024
Tel: 310.315.7019
Fax: 310.315.7017
Alpharetta, GA 30005
4350 Von Karman Avenue
As of March 21, 2018,
the Company had 194
employees.
Registrar and
Transfer Agent
Computershare Trust
Company, NA
PO Box 505000
Tel: 678.297.0100
Fax: 678.297.0101
Suite 225
Louisville, KY 40233-5000
Newport Beach, CA 92660
Tel: 800.317.4445
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
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
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2017 Annual Report